Question

The magnitude of monopoly power of a commodity on the following factor __________.

• A. inelasticity of demand
• B. elasticity of demand
• C. supernormal profit
• D. the upward movement of a demand curve

Answer 1

The correct option is C supernormal profit

Supernormal profit is a profit which is more than that of the normal profit. A monopoly is a situation where there is only a single seller who sells products which are not close substitutes for each other. There is also a free entry and exit of firms. The owner also has a full control over the prices of the product. Hence, a seller can earn huge profits due to price discrimination. Hence, the magnitude of monopoly power is based on supernormal profit.