Question

A monopoly has noticed that in summer for any price they set, the demand is 20% higher but his marginal cost is the same year round. How should their prices be different in summer and
the rest of the year?

Answer 1

Ans) Monopoly is when there is a single seller selling unique product. A profit maximising firm produces the quantity where MR and MC curve intersect and then uses demand curve to determine the price.

In summers, since the demand is high, monopoly will charge higher prices. While rest of the year it will charge lower prices than the summer. This way, monopoly can increase its revenue.

The above graph shows that when demand increases in summer, price charged by monopoly also rises.