Question

"A monopoly firm will charge an exorbitant price for its product.” Explain why this statement is incorrect.

Answer 1

The statement is incorrect.

Reason

Monopoly charges the price at which it maximizes it's profit, it is generally higher than competitive markets. But, the price is definitely not exorbitant. Since consumers are price-sensititive, if the monopoly charges very high price, there wil be a only few takers, thus there will be a huge fall in the volume of sales, so the revenue and profit may not be maximized if the monopoly charges exorbitant price.

Apart from that, if exorbitant amount is charged for a necessary commodity, government can intervene in the process to take down th e price.