The market demand curve for a monopolist is typically: A. horizontal B. unit elastic C. perfectly elastic at market price D. downward-sloping
Question
The market demand curve for a monopolist is typically:
A. horizontal
B. unit elastic
C. perfectly elastic at market price
D. downward-sloping
Solution
The market demand curve for a monopolist is typically downward-sloping (D).
Here's why:
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A monopolist is the only seller in the market, and therefore faces the market demand curve.
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The demand curve is downward sloping because as the price of a good increases, the quantity demanded decreases, and vice versa. This is known as the law of demand.
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This is different from a perfectly competitive firm, which faces a horizontal (perfectly elastic) demand curve. In a perfectly competitive market, firms are price takers and can sell all they want at the market price.
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But a monopolist is a price maker and can set its own price. The price it sets, and the quantity it sells, will be determined by where its marginal cost curve intersects the market demand curve.
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Therefore, the market demand curve for a monopolist is typically downward-sloping.
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