The correct answer is: D. Marginal revenue and average cost.
Marginal revenue is the additional revenue a firm earns from selling one more unit of output. Average cost is the total cost of production divided by the number of units produced. The degree of monopoly power is a measure of how much a firm can raise its price above marginal cost without losing all of its customers. A firm with a high degree of monopoly power can charge a high price and still sell a lot of output, while a firm with a low degree of monopoly power can only charge a low price.
The difference between marginal revenue and average cost is called the profit margin. A firm with a high profit margin has a high degree of monopoly power, while a firm with a low profit margin has a low degree of monopoly power.
Here is a diagram that illustrates the relationship between marginal revenue, average cost, and price:
[Diagram of a firm’s marginal revenue and average cost curves]
The marginal revenue curve is the blue line, and the average cost curve is the red line. The price is the point where the marginal revenue curve intersects the demand curve. The profit margin is the vertical distance between the price and the average cost curve.
As you can see, a firm with a high degree of monopoly power can charge a high price and still sell a lot of output. This is because the marginal revenue curve is above the average cost curve for a large range of output levels. A firm with a low degree of monopoly power, on the other hand, can only charge a low price. This is because the marginal revenue curve is below the average cost curve for all output levels.