What does an monopolist do?

When ________ substitutes exist, a monopolist has ________ power to raise price.

a) more; more
b) no; infinite
c) fewer; less
d) more; less

B and D sounds about right. both are similar. but no substitues exist when there is a monopoly

so is B right?

Answer:
Monopoly does not mean there are no substitutes, just that there are no close substitutes. Coffee and tea are two different hot drinks, but theoretically you can have a monopoly in coffee . But tea would be become a substitute for coffee and could affect the ability of the monopolist to raise prices. Heck, if coffee became too expensive even hot lemon water might become a substitute.

Thus, B or D could be right.

But B uses the word infinite. The problem is, demand is also a factor in pricing, even for a monopolist with absolutely no substitutes. If you raise the price beyond the reach of anyone (the use of infinite power), you will not sell any units, because no one could afford it, regardless of need or want. If a monopolist wants to maximize profits, he sets units produced to where marginal cost is equal to marginal revenue, and then charges the price that demand will pay for that many units (in a one price market).

That is why I would select D.

Peace
B By definition, no competition exists.
The behavior of a profit-maximizing monopolist setting a single price
Basic theory
A firm is a monopolist if it has no close competitors, and hence can ignore the potential reactions of other firms when choosing its output and price.

Theory: a monopolist chooses its output to maximize its profit, given the relationship between output and price as embodied in the aggregate demand function for the good it sells.
B sounds good to me!

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