Question

Which of the following correctly describes how a​ firm's monopoly power would​ decrease? A. If the...

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.

Homework Answers

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.
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