1
$\begingroup$

I have the following True/False question:

A single price-taking firm on the market is called a monopoly.

As far as I know, a monopoly is a price maker not a price taker. That being said if it is a single firm how in the world can it not be a monopoly?

In my opinion, the answer to this question is False.

Could anyone possibly explain to me if my way of thinking is correct? and if a monopolistic firm can be a price taker?

Thank you very much

Improve this question
$\endgroup$
0
$\begingroup$

You are correct. A monopoly is a price maker. Not a taker.

A monopoly has the power to influence the price it charges as the good it produces does not have perfect substitutes. A price maker within monopolistic competition produces goods that are differentiated in some way from its competitors' products.

I suppose a monopolistic firm could be a price taker via matching random re-sellers prices on singular items, however that would be operating at a loss a majority of the time. The idea with that though is to retain the customer business for the future, not to make a single small profit on one item, one time.

Improve this answer
$\endgroup$
7
  • $\begingroup$ Thank you very much for your quick reply! so would you say the answer to this question is True or False? $\endgroup$
    – Fozoro
    May 8 '19 at 13:34
  • $\begingroup$ I would say the answer is False, however it is important to understand not 100% of the time. The question does say a SINGLE firm, so actually in the universe of this question, 100% of the time FALSE. $\endgroup$
    – Clinical_Coder
    May 8 '19 at 13:43
  • $\begingroup$ As far as I understood the second paragraph you wrote refers to "the exceptions situtation" though are there any in real life or is it just theoretical? $\endgroup$
    – Fozoro
    May 8 '19 at 13:47
  • $\begingroup$ There is plenty of real life examples as it pertains to resellers. Some monopolistic companies(Target, Best Buy, Walmart, Home Depot, Lowe's, Staples, even Amazon) offer price matching. When these companies price match to someone else's price even though technically they are still the monopoly power, they lose money a majority of the time. $\endgroup$
    – Clinical_Coder
    May 8 '19 at 14:00
  • $\begingroup$ Oh I see didn't really think about this. Though would this be considered more as price discrimination (Those who have the time and will to search for the better deals will get a different price than those who don't really care about overpaying). $\endgroup$
    – Fozoro
    May 8 '19 at 14:02

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.