Question

1.'Being the only seller in the market, the monopolist can choose any price and quantity it desires. It can therefore price its product as high as it wants.' Evaluate this statement: Is it true or false? Explain your answer using a graph. – Word count 120

2.Callaway is a company that sells golf clubs. Callaway recently engaged in research and development leading to the production, and released, of a new set of clubs designed for women that provides a significant advantage to players. Explain, using a graph, how will this impact on the price, quantity and profit of Callaway in the long run if the company is a monopoly? Explain, using a graph, how this will change if many other companies start selling similar products? – Word count 200

Answer 1

Ans.1- False

A monopolist can choose either higher price or higher quantity but not both. This is because monopolist faces a downward sloping demand curve. As shown in the figure above, if it set price equal to L ,its demand will be N. If it increases its price to H ,its demand will fall to G.

Ans.2-