Questions: The following statements give some information about six firms. a. Coca-Cola cuts its price below that of Pepsi-Cola to increase profit. b. A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes. c. A barrier to entry exists, but the good has some close substitutes. d. A museum offers discounts to students and seniors. e. A firm can sell any quantity it chooses at the going price. f. A firm experiences economies of scale even when it produces the quantity that meets the entire market demand. Which of the six cases are monopolies or might give rise to monopoly? A monopoly might arise in the markets described in A. statements e and f B. statements a, b, and c C. statements c, d, and e D. statements b and f

The following statements give some information about six firms. a. Coca-Cola cuts its price below that of Pepsi-Cola to increase profit. b. A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes. c. A barrier to entry exists, but the good has some close substitutes. d. A museum offers discounts to students and seniors. e. A firm can sell any quantity it chooses at the going price. f. A firm experiences economies of scale even when it produces the quantity that meets the entire market demand. Which of the six cases are monopolies or might give rise to monopoly? A monopoly might arise in the markets described in A. statements e and f B. statements a, b, and c C. statements c, d, and e D. statements b and f
Transcript text: The following statements give some information about six firms. a. Coca-Cola cuts its price below that of Pepsi-Cola to increase profit. b. A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes. c. A barrier to entry exists, but the good has some close substitutes. d. A museum offers discounts to students and seniors. e. A firm can sell any quantity it chooses at the going price. f. A firm experiences economies of scale even when it produces the quantity that meets the entire market demand. Which of the six cases are monopolies or might give rise to monopoly? A monopoly might arise in the markets described in A. statements e and f B. statements a, b, and c C. statements c, d, and e D. statements b and f
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Solution

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The answer is D: statements b and f.

Explanation for each option:

  • Statement a: Coca-Cola cutting its price below that of Pepsi-Cola to increase profit suggests a competitive market where firms are price takers or engage in price competition. This is not indicative of a monopoly.

  • Statement b: A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes. This is a classic definition of a monopoly, where a single firm dominates the market due to barriers to entry and lack of substitutes.

  • Statement c: A barrier to entry exists, but the good has some close substitutes. This suggests an oligopoly or monopolistic competition rather than a pure monopoly, as there are substitutes available.

  • Statement d: A museum offers discounts to students and seniors. This is an example of price discrimination, which can occur in various market structures, including monopolies, but does not in itself indicate a monopoly.

  • Statement e: A firm can sell any quantity it chooses at the going price. This describes a perfectly competitive market where firms are price takers, not a monopoly.

  • Statement f: A firm experiences economies of scale even when it produces the quantity that meets the entire market demand. This suggests a natural monopoly, where a single firm can supply the entire market at a lower cost than any combination of multiple firms due to economies of scale.

Therefore, the statements that describe situations where a monopoly might arise are b and f.

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