ACCA Financial Management (F9) Certification Practice Exam

Which of the following is a consequence of monopolies?

1. Increase in product variety

2. Higher prices for goods

3. Lower consumer prices

4. More innovation in product development

The correct answer is: Higher prices for goods

Monopolies are characterized by a single company or entity controlling a significant market share, which often leads to less competition in the marketplace. One of the primary consequences of monopolies is the ability to set prices above the equilibrium level that would typically be determined in a competitive market. This higher pricing occurs because, without competition, a monopolistic company can charge more without losing customers to rivals. Customers have limited choices and must either pay the higher prices set by the monopoly or go without the product or service. This lack of competitive pressure allows monopolies to maximize their profits, often at the expense of consumer welfare. In contrast, competitive markets tend to lead to lower prices and greater choices for consumers due to the presence of multiple firms striving to attract customers. Thus, the consequence of higher prices for goods is a direct result of the monopolistic structure where a single firm dominates the market and faces little to no competition.