Certified Management Accountant Practice Exam

In a monopoly, the primary control the firm has is significant control over the selling price. This is because a monopolistic firm is the sole producer of a particular product or service in the market, meaning that it faces no direct competition. As a result, the monopolist can influence the market price by adjusting the quantity of the product it supplies.

Unlike firms in competitive markets, where they must take the market price as given due to many competitors offering similar products, a monopolistic firm can set a price that maximizes its profits, typically above marginal costs. This ability to set prices allows monopolists to control their profit margins and potentially earn higher returns on their investment compared to firms operating in competitive markets where price is driven by market forces.

Governments often regulate monopolies to prevent price gouging and ensure fair market practices, but as long as they maintain their monopolistic advantages, they can exert significant influence over their pricing strategies and market behavior. Other options relate to aspects of competition or product differentiation, but they do not describe the core power a monopoly holds in the market regarding pricing.