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Chapter 10: Problem 2

The monopolist is (LO1) a) an imperfect competitor and has a horizontal demand curve b) an imperfect competitor and has a downwardsloping 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 b) an imperfect competitor and has a downward-sloping demand curve.

Step by step solution

01

Option a - Imperfect competitor with a horizontal demand curve

An imperfect competitor is a market participant that has some influence over the market price, meaning it can partially control its price due to its relevant market power. The horizontal demand curve means that the demand remains the same when the price changes. A monopolist's prices are not strictly based on market changes, so a horizontal demand curve is not accurate in this case.
02

Option b - Imperfect competitor with a downward-sloping demand curve

As stated before, a monopolist can dictate its price and has significant market power, which means it is indeed an imperfect competitor. A downward-sloping demand curve means that the higher the price, the lower the quantity demanded, and vice versa. This characteristic is true for a monopolist as their products typically don't have close substitutes, so they can charge a higher price for lower quantities with consumers still being interested. This statement makes sense.
03

Option c - Perfect competitor with a horizontal demand curve

A perfect competitor is not able to control its price and has no market power, as there are several market participants with identical products. Moreover, a horizontal demand curve means that the price remains constant regardless of the quantity demanded. A monopolist has significant control over the market price, so this statement doesn't suit the characteristics of a monopolist.
04

Option d - Perfect competitor with a downward-sloping demand curve

As mentioned during the analysis of option c, a perfect competitor is not able to influence its price, so any demand curve for a perfect competitor would be horizontal. Therefore, a downward-sloping demand curve is not consistent with the concept of perfect competition. Based on our analysis, the answer to the exercise is: The monopolist is b) an imperfect competitor and has a downward-sloping demand curve

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Most popular questions from this chapter

Which statement is true? \((\mathrm{LO} 4,5)\) a) It is impossible for monopolies to exist in the United States. b) Once a monopoly is set up, it is impossible to dislodge it. c) Monopolies can be overcome only by market forces. d) Monopolies can be overcome only by the government. e) None of the above.

Which of the following is a natural monopoly? (LO6) a) the National Football League b) a local phone company c) DeBeers Diamond Company d) IBM

Each of the following is true about Walmart except that (LO8) a) it is the largest employer in the United States b) it is the largest company in the world c) it pays its employees, on average, about the same as its competitors d) it drives hard bargains with suppliers and passes along the savings to its customers

Which statement is true? (LO3) a) The monopolist cannot lose money. b) The monopolist always operates a large firm. c) The monopolist will not lose money in the short run. d) The monopolist will not lose money in the long run.

Which statement is the most accurate? (LO6) a) The rationale for natural monopoly has been strengthened by deregulation. b) Your local phone and electric companies will probably continue to be monopolies for at least another 50 years. c) Deregulation and competition tend to lower costs. d) Natural monopoly never had any economic basis.
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