![]() ![]() In a perfect competition, no firm has any market power because they face a horizontal demand curve. Why is it that a firm in perfect competition is a price-taker while a monopoly can set any price it deems fit? The answer lies in the nature of the demand curve facing each firm. Monopoly power typically exists where the there is low elasticity of demand and significant barriers to entry. Monopoly power (also called market power) refers to a firm’s ability to charge a price higher than its marginal cost.
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