Question

One aspect of a monopolist is the immense amount of pricing power that they have in the marketplace. Answer the following questions regarding the pricing power of a hypothetical monopolist:

A. At which point along the demand curve would a monopolist theoretically stop raising prices? Explain.

B. Compare and contrast the monopolist to the perfect competitor. Why is the perfect competitor a price-taker and the monopolist a price-maker? Explain.

C. Explain the role that government regulation plays in controlling the otherwise monopolistic tendencies of a real-world market for which there is largely only one supplier of a product or service.

Answer 1

1) The price of the monopoly market depended on nature of the demand curve of the firm example demand curve of monopoly market is inelastic firm will charge higher price and demand for product is elastic firm charge low price and price of the product always greater than MC of the product

2) Monopoly firm is price makers because there are no competitors for firm can decide the price based on demand and supply

Whereas in perfect competation firm is price taker because the firm cannot fix the price because there are a large number of firms if firm fixes the price above market firm might lose the market.

3) The government regulation in monopoly market is because monopoly market is a not ideal market where price is greater than the price and level of output is not optimal size thus government interference becomes necessary for the control monomoly market.