Chapter 9: Problem 16

How does the demand curve perceived by a monopolist compare with the market demand curve?

Short Answer

Expert verified

The demand curve perceived by a monopolist is the same as the market demand curve since the monopolist is the sole supplier of the product. It is typically downward-sloping, meaning that as the price of the product increases, the quantity demanded decreases, and vice versa. In competitive markets, each firm faces a horizontal demand curve, and the downward-sloping market demand curve is the aggregate of individual firm's demand.

Step by step solution

Defining a Monopolist

A monopolist is a firm that has exclusive control over a product or service in the market. It is the only supplier of the product, and there are no close substitutes available for consumers. As a result, the monopolist has the market power to set prices and output levels.

Demand Curve for a Monopolist

The demand curve for a monopolist shows the relationship between the quantity of a product demanded and its price, given that there are no close substitutes for the product. A monopolist's demand curve is usually downward sloping, which means that as the price of the product increases, the quantity demanded decreases, and vice versa.

Market Demand Curve

The market demand curve represents the total quantity of a good or service that buyers in the market are willing and able to purchase at different price levels. Like the monopolist's demand curve, the market demand curve is typically downward sloping. This relationship occurs because buyers usually demand a lesser quantity of a good or service as its price increases.

Comparing Demand Curves

For a monopolist, its perceived demand curve is the same as the market demand curve. This is because the firm is the only supplier in the market; thus, the entire market demand falls on the monopolist. In a competitive market, there are multiple sellers, and each firm faces a horizontal, perfectly elastic demand curve, meaning that firms can sell as much as they want at the market price without affecting the price.

Conclusion

To summarize, the demand curve perceived by a monopolist is the market demand curve since the monopolist is the sole supplier of the product. A monopolist's demand curve is downward-sloping, exhibiting the inverse relationship between price and quantity demanded. In contrast, in competitive markets, each firm faces a horizontal demand curve, and it's the aggregate of individual firm's demand that forms the overall downward-sloping market demand curve.