The pure monopolist’s demand curve is:
a. identical with the industry demand curve.
b. of unit elasticity throughout.
c. perfectly inelastic.
d. perfectly elastic.
The correct answer and explanation is :
The correct answer is:
a. identical with the industry demand curve.
Explanation:
A pure monopolist is the sole producer or seller of a product in a market, meaning that there are no close substitutes for the product it offers. The demand curve for the monopolist is the same as the industry demand curve because the monopolist is the only firm in the market, so it determines the total quantity demanded in the entire market. This is in contrast to a competitive market, where each firm faces a perfectly elastic demand curve, and the industry’s demand curve is the summation of the individual firm demand curves.
Since the monopolist is the sole producer, it faces the entire market demand curve. This demand curve is typically downward sloping, reflecting the law of demand: as the price of the product increases, the quantity demanded decreases. This downward sloping curve shows that the monopolist can sell more only if it lowers the price, and conversely, to sell less, the monopolist can increase the price.
Why the other options are incorrect:
- b. of unit elasticity throughout: The demand curve of a monopolist is not necessarily of unit elasticity throughout. In fact, the price elasticity of demand varies along the curve. The demand curve could be elastic, inelastic, or unit elastic depending on the price and quantity levels.
- c. perfectly inelastic: A perfectly inelastic demand curve would mean that consumers will buy the same quantity regardless of price. However, this is not typical for a monopolist, as the demand curve is generally downward sloping (i.e., quantity demanded changes with price).
- d. perfectly elastic: A perfectly elastic demand curve would imply that consumers would purchase any quantity at a single price but would not buy at any price higher than that. This is not typical for a monopolist, as they face a downward-sloping demand curve, not a perfectly elastic one.
Therefore, the correct answer is a. identical with the industry demand curve, as the monopolist’s demand curve is the entire market’s demand curve.