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Chapter 9: Q 16 (page 232)

How does the demand curve perceived by a monopolist compare with the market demand curve?

Short Answer

Expert verified

Since the monopolist is the only firm, its demand curve is equivalent to the market demand curve which is downward sloping, however less steep, as there is no competition.

Step by step solution

01

Step 3. The relation between the market demand curve and a demand curve of a monopolist.

The perceived demand curve by a monopolist is equivalent to the market demand curve. Both the demand curves are downward sloping, however, the monopolist curve is more inelastic, meaning changes in price don't change quantity as much as a market demand curve.

The figure above shows that the quantity demanded increases fromQ1to Q2with a decrease in price from P1to P2.

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Most popular questions from this chapter

Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose the demand for the monopoly鈥檚 product increases dramatically. Draw the new demand curve. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the answer make sense to you?

Is a monopolist a price taker? Explain briefly.

Return to Figure 9.2. Suppose P0is \(10and P1is \)11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000units of output. Estimate from the graph what the new firm鈥檚 average cost of producing output would be. If the incumbent continues to produce 6,000units, how much output would the two firms supply to the market? Estimate what would happen to the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately how much profit would each firm earn?

Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10%less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?

Draw a monopolist鈥檚 demand curve, marginal revenue, and marginal cost curves. Identify the monopolist鈥檚 profit-maximizing output level. Now, think about a slightly higher level of output (say Q0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?
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