Chapter 22: Problem 2

The monopolist is (LO1) a) an imperfect competitor and has a horizontal demand curve b) an imperfect competitor and has a downward sloping demand curve c) a perfect competitor and has a horizontal demand curve d) a perfect competitor and has a downward sloping demand curve

Short Answer

Expert verified

The monopolist is an imperfect competitor and has a downward sloping demand curve (option b). This is due to the monopolist's significant market power and control over prices, as well as operating in an imperfect competition market.

Step by step solution

Understanding Monopolist

A monopolist is a single seller in the market, with no close substitutes for the product they offer. As a result, they have significant market power and can set prices and output levels as they wish.

Perfect vs. Imperfect Competition

Perfect competition refers to a market situation where there are many buyers and sellers offering homogeneous products and with perfect information. No single participant can influence the market price. Imperfect competition, on the other hand, refers to markets where participants can influence prices, and products offered can be differentiated.

Demand Curves in Perfect Competition

In perfect competition, firms are price takers and face a horizontal demand curve. This means that the demand for their products remains the same regardless of the price they set. Since the market has many participants offering homogeneous products, the firm cannot influence the market price.

Demand Curves in Imperfect Competition

In imperfect competition, firms' demand curves are downward sloping. This signifies that they can sell more quantity at lower prices. The demand curve reflects the fact that with differentiated products and fewer competitors, the firms have some power to set their prices.

Identifying the Correct Option

Considering the concepts discussed above, we can eliminate option (c) and option (d), as these refer to perfect competition, and a monopolist operates in an imperfect competition market. Between option (a) and option (b), the correct statement is: b) An imperfect competitor and has a downward sloping demand curve This is because a monopolist is the only seller in the market, granting them control over prices and leading to a downward sloping demand curve.