ACCA Performance Management (F5) Certification Practice Exam

In which market structure does a single seller control the production and pricing of a product?

1. Oligopoly

2. Monopoly

3. Monopolistic competition

4. Perfect competition

The correct answer is: Monopoly

In the context of market structures, a monopoly is characterized by the presence of a single seller who has significant control over the production and pricing of a product. This seller holds a dominant position in the market, meaning that they are the sole provider of a particular good or service, facing little to no competition. The distinct feature of a monopoly is that it can set prices above the competitive equilibrium level, as consumers have no alternative sources to acquire the product. This pricing power allows the monopolist to maximize profit by controlling the supply and influencing the market dynamics to their advantage. The barriers to entry in a monopolistic market are typically high, which prevents other firms from entering and competing. In contrast, other market structures represent different configurations of competition and seller power. Oligopoly involves a few large firms that dominate the market, monopolistic competition includes many sellers with differentiated products, and perfect competition consists of numerous sellers offering identical products, leading to no single seller's control over pricing. Thus, the defining aspect of a monopoly is the exclusive control by one seller, validating the selection of this option.