Question

Will an increase in the demand for a​ monopolist's product always result in a higher​ price? Explain.

An increase in the demand for a​ monopolist's product

a)will always result in a higher price because the monopoly has an​ upward-sloping supply curve.

b) will not always result in a higher price because the​ monopolist's output decision depends on marginal cost and the shape of the demand curve.

c) will always result in a higher price because the monopoly supplies a specific quantity at every price.

d) will always result in a higher price because the monopoly might supply several different quantities at the same price or the same quantity at different prices.

e) will not always result in a higher price because there is a negative​ one-to-one relationship between price and quantity for a monopoly.

Answer 1

Answer : Option B is correct. An increase in the demand for the product will not always resulted in a higher price because the monopolist output decision depends on marginal cost and the shape of the demand curve. It means that monopolist decision regarding increase in the price is directly depend upon the output level. As output level has been produced till where the marginal revenue is exactly equal to marginal cost. The price should be set in such a way that it meets the demand curve or AR curve. Sometime when the firm has been attained the position of profit maximisation than it attain the same level.