Question

The higher the level of market power among the sellers in a market, the _____ when the Rational Rule for Sellers is applied.

1lower the market output

2lower the market demand

3closer marginal revenue is to price

4higher the marginal cost

Answer 1

According to profit maximizing condition higher the market power means he has ability to charge price more higher than Marginal cost and thus price charged will be higher and thus lesser output will be produced. Thus, The higher the level of market power among the sellers in a market, the lower will be the market output.(Note : Market demand is the curve that shows quantity demand at various prices and it will not be effected by Sellers decision)

Hence, the correct answer is (a) lower the market output.