Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which situation describes a monopoly?

1. A market with many competing producers

2. A market with a few dominant firms

3. A market with only one producer

4. A market characterized by product differentiation

The correct answer is: A market with only one producer

A monopoly is defined as a market structure where a single producer or firm has exclusive control over the supply of a product or service. This means that there are no close substitutes available for consumers, allowing the monopolist to set prices and determine market conditions without facing competition. In this context, the correct answer highlights that only one producer exists in the market, which is the hallmark of monopoly. The lack of competition enables the monopolist to exert significant influence over the market, affecting pricing, output levels, and the overall consumer choice. The other scenarios, such as a market with many competing producers, a market with a few dominant firms, or a market characterized by product differentiation, all imply the presence of competition, which is contrary to the definition of a monopoly. In those situations, different firms can influence market dynamics, share market power, and provide consumers with various choices, which does not align with the characteristics of a monopoly.