Question

Lonewolf Ltd is the sole manufacturer and supplier of solar panels in the country. As a result of this the CEO claimed in a recent meeting that he can set any price he wishes and sell as many units of his product as he wants at that price. Is this correct? Motivate your answer. Please provide references

Answer 1

It has been stated that Lonewolf Ltd is the sole manufacturer and supplier of solar panels in the country.

This implies that Lonewolf is a monopolist.

It is true that being the only seller, monopolist tends to have market power and due to this market power can set price.

However, monopolist faces a downward sloping demand curve.

This downward sloping demand curve indicates that a monopolist can sell more only by reducing price.

So, a monopolist would not be able to sell as much as it wants at any price it sets. To sell more it has to reduce the price.

Thus, the assertion made by the CEO that he can set any price he wishes and sell as many units of his product as he wants at that price is not correct.

CEO can set any price he wants but would not be able to sell as much as it wants at that price.