ACCA Financial Management (F9) Certification Practice Exam

What outcome is NOT typically associated with monopolies?

1. Restricted production levels

2. Enhanced competition

3. Reduced consumer choice

4. Higher prices

The correct answer is: Enhanced competition

In the context of monopolies, enhanced competition is not typically observed. A monopoly exists when a single firm is the sole provider of a good or service in a market, effectively eliminating competition. This lack of competition allows the monopolistic firm to exert significant control over the market, leading to outcomes that include restricted production levels, reduced consumer choice, and often higher prices for consumers. Monopolies typically produce less than competitive firms would, as they aim to maximize profits rather than meet consumer demand. This restricted production not only leads to higher prices but also diminishes the variety of products available to consumers. Because the monopolist does not have to compete with other firms, consumers face limited choices, as the monopolist has no incentive to innovate or improve their offerings. Thus, enhanced competition is fundamentally at odds with the characteristics and behaviors of monopolistic markets, reinforcing why this outcome does not align with the typical effects associated with monopolies.