Question

When firms exercise monopoly (price setting) power, which of the following is true?

a. consumers end up paying relatively high prices and society is made worse off

b. consumers end up paying relatively low prices and society is made worse off

c. consumers end up paying relatively high prices and society is made better off

d. consumers end up paying relatively low prices and society is made better off

Answer 1

Answer) When firms exercise monopoly (price setting) power consumers end up paying relatively high prices and society is made worse off.

In the above figure when there is monopoly the firm would produce where MR = MC and the firm will charge Pm and output Qm which is higher to the price and output when there is perfect competition in the market.

Hence option A is the correct answer.

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