Question

As other firms enter a monopoly's market, the monopoly's market power

A.

declines.

B.

increases.

C.

is unaffected.

D.

increases according to the Lerner Index but decreases according to the price/marginal cost ratio.

Answer 1

Since A monopoly market is a market in which there is a single firm who supply the goods to whole market and ATC is minimum for this firm compare to other firms. Hence when a new firm enter in this market, then monopoly firm will reduce the price so that monopoly firm price is less than the new entering firm ATC. Hence the new firm cannot produce in this market.

It means entering of new firm is very difficult. Hence As other firms enter a monopoly's market, the monopoly's market power is unaffected.

Hence option c is the correct answer.