A monopoly firm is different from a competitive firm in that
A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product
B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic
C. a monopolist can influence market price while a competitive firm cannot
D. a competitive firm has a U-shaped average cost curve while a monopolist does not
To determine which option is correct, we need to compare the characteristics of a monopoly firm and a competitive firm.
A. This option is incorrect. In a monopoly, there are no close substitutes for the monopolist's product, while in a competitive market, there are many similar products available from different firms.
B. This option is incorrect. A monopolist's demand curve is typically downward-sloping, indicating some level of elasticity. A competitive firm's demand curve is perfectly elastic, meaning that it can only sell at the going market price.
C. This option is correct. One of the key differences between a monopoly firm and a competitive firm is that a monopolist has the ability to influence market price. Since there are no close substitutes in a monopoly market, the monopolist can adjust the price to maximize their own profits. In contrast, a competitive firm has no control over the market price and must accept the prevailing price determined by the interaction of supply and demand.
D. This option is incorrect. The shape of the average cost curve is not a defining characteristic of a monopoly or a competitive firm. Both types of firms can have different cost structures, including U-shaped average cost curves.
So, the correct answer is C. A monopolist can influence market price while a competitive firm cannot.