Question

Which of the following correctly describes how a​ firm's monopoly power would​ decrease? A. If the number of firms​ increases, the​ firm's demand will become more inelastic. B. If other firms are reluctant to raise their​ price, the​ firm's demand will become more inelastic. C. If the production process includes more fixed​ inputs, the​ firm's demand will become more elastic. D. If the cost of production​ increases, the​ firm's demand will become more elastic. E. If the market demand curve becomes more​ elastic, the​ firm's demand curve will become more elastic.

Answer 1

Option E

• A monopoly is a market structure in which there is a single firm selling unique goods and services.
• As a customer do not have any other choice this firm will sell the goods at higher rates to its customers in order to earn more profits.
• But if the customers demand curve becomes elastic or if their demand increases or decreases with a decrease or increase with price, the firm's demand curve also becomes elastic.
• This is because a monopoly's firm's demand curve becomes relatively elastic when the marginal revenue is positive and total revenue is increasing.
• This allows them to charge higher prices for smaller quantities.