A Level Economics AQA Practice Exam

What defines a legal monopoly?

1. A firm with less than 20% market share

2. A firm with exactly 30% market share

3. A firm holding at least 25% of the market share

4. A firm with exclusive production rights

The correct answer is: A firm holding at least 25% of the market share

A legal monopoly is characterized by a firm holding a significant portion of the market share, which allows it to dominate the market and minimize competition. The defining feature of a legal monopoly is that it is recognized and often regulated by law. In many jurisdictions, a firm is considered a monopoly when it controls at least 25% of the market, which can enable it to influence prices and control the supply of goods or services. This level of market share indicates that the firm has substantial power in its industry and can act without facing competitive pressures that smaller firms would typically encounter. It is important to distinguish this from lower levels of market share, where firms may still compete actively against others and not necessarily dominate the market. In contrast, the other options do not accurately represent the threshold for defining a legal monopoly. Market shares below 25% typically do not grant sufficient market power to influence pricing or output significantly. Therefore, the correct answer highlights the minimum share necessary to classify a firm as a legal monopoly.