Monopolies often charge prices that exceed their marginal cost, which allows them to earn profits. Among monopolies though, the degree to which firms can mark up prices varies.

Differences in what characteristic explains the extent to which monopolies can mark up prices?

O the firm's cost structure

O the firm's approach to marketing their product

O how strictly patents are enforced in the relevant country

O the price elasticity of demand for the firm's output

Question

Business

Hailie Massey

28 October, 19:27

Monopolies often charge prices that exceed their marginal cost, which allows them to earn profits. Among monopolies though, the degree to which firms can mark up prices varies.

Differences in what characteristic explains the extent to which monopolies can mark up prices?

O the firm's cost structure

O the firm's approach to marketing their product

O how strictly patents are enforced in the relevant country

O the price elasticity of demand for the firm's output

+5

Answers (1)

Know the Answer?

Erick Crosby · Answer 1

the price elasticity of demand for the firm's output

Explanation:

A monopoly is a single firm operating an industry.

The degree to which monopolies can mark up prices depends on the price elasticity of demand of consumers.

Price elasticity of demand measures the rate at which quantity demanded changes when price changes.

If the demand for the product of a monopoly firm is inelastic, firms can mark up their prices to any degree in the absence of government regulation.

If the demand for the product of a monopoly firm is elastic, it limits the degree to which the firm can mark up prices because if price is increased to a certain level, quantity demanded falls.