Question

A monopoly market has very few substitutes almost none. Yet the seller operates on the elastic...

A monopoly market has very few substitutes almost none. Yet the seller operates on the elastic portion of the demand curve.
01. Explain the statement and justify it using a suitable diagram. Give 2 examples of the same.

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Answer #1

A monopoly always operates in the elastic portion of the demand curve, which implies it can set high price and have MR as positive and TC lower. However, in the elastic portion of demand curve, the MR is negative and prices are set low which leads to high total costs.

Thus, in order to maximize profits, the monopoly operates in the elastic portion of demand curve.

As we can see, in the elastic portion, the TR are still increasing while in inelastic portion, TR is falling.

Thus, it is profitable for monopolies to operate in elastic portion of demand curve.

Eg. of monopoly: Google, Facebook, US Postal service

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