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Questions
Producers in a monopoly are price makers. Briefly explain.
Why is a monopoly firm called a price-maker?
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Solution
- In a monopoly, manufacturers are called price makers since they have massive market power due to the lack of competition.
- A monopolist is the sole manufacturer of a specific product or service, meaning no close substitutes exist.
- This absence of competition allows the monopolist to establish the product's price rather than being forced to accept a market-determined price as under perfect competition.
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