Question

3) The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPEC's market share has declined to about half of its former level. This outcome is a good example of how firms may have: A) relatively high short-run monopoly power that strengthens in the long run. B) relatively high short-run monopoly power that declines in the long run. C) relatively low short-run monopoly power that strengthens in the long run. D) relatively low short-run monopoly power that declines in the long run.

Answer 1

The correct option is B.

According to the definition of monopoly, it is a market form which has a single seller and sells a unique product in the whole market. This is the reason it is able to dominate the market easily and has complete power of setting the price for the product.

According to the situation provided in the problem, the OPEC was once a monopoly and controlled a majority share (about 80%) of the petroleum market. However, later, its market share declined to about half. Thus, it can be said that OPEC enjoyed less time of staying in the monopoly position and declined afterwards in the long run.