Which concept describes the power to influence prices due to lack of competition?

Which concept describes the power to influence prices due to lack of competition?

• A. Price Discrimination
• B. Monopoly Power
• C. Oligopoly
• D. Perfect Competition

Answer: (B)

The key idea is market power: the ability to influence prices when competition is limited. A monopoly is a single seller in a market, so it faces a downward-sloping demand curve and can choose a price (and output) that maximizes profit rather than taking the market price as given. Because there aren’t close rivals, the firm can raise the price above the level that would prevail in a competitive market, knowing consumers have few or no substitutes. In contrast, in perfect competition many firms sell identical products and are price takers, so no single firm can influence the price. An oligopoly has a few firms and can affect prices to some extent, but the clearest example of price-setting power due to lack of competition is monopoly power. Price discrimination is about charging different prices to different groups, not about the inherent ability to set prices caused by competition levels.

The key idea is market power: the ability to influence prices when competition is limited. A monopoly is a single seller in a market, so it faces a downward-sloping demand curve and can choose a price (and output) that maximizes profit rather than taking the market price as given. Because there aren’t close rivals, the firm can raise the price above the level that would prevail in a competitive market, knowing consumers have few or no substitutes. In contrast, in perfect competition many firms sell identical products and are price takers, so no single firm can influence the price. An oligopoly has a few firms and can affect prices to some extent, but the clearest example of price-setting power due to lack of competition is monopoly power. Price discrimination is about charging different prices to different groups, not about the inherent ability to set prices caused by competition levels.