In a monopoly, which statement is true?

In a monopoly, which statement is true?

• A. There are many firms selling identical goods
• B. Government sets prices for all products
• C. One firm produces all the output in the market
• D. Firms earn normal profits only

Answer: (C)

Monopoly means a single seller dominates the market, so one firm is responsible for all the output. With no close substitutes and high barriers to entry, that firm can control how much is produced and set the price accordingly, effectively being the industry itself. That’s why the statement that one firm produces all the output in the market is true. The other ideas don’t fit a typical monopoly: there aren’t many firms selling identical goods in a monopoly, price levels aren’t typically dictated by the government in a standard monopoly, and monopolies can earn profits above normal due to their market power, not just normal profits.

Monopoly means a single seller dominates the market, so one firm is responsible for all the output. With no close substitutes and high barriers to entry, that firm can control how much is produced and set the price accordingly, effectively being the industry itself. That’s why the statement that one firm produces all the output in the market is true. The other ideas don’t fit a typical monopoly: there aren’t many firms selling identical goods in a monopoly, price levels aren’t typically dictated by the government in a standard monopoly, and monopolies can earn profits above normal due to their market power, not just normal profits.