"Being the only seller in the market, the monopolist can choose any price and quality it...

"Being the only seller in the market, the monopolist can choose any price and quality it desired" Explain and evaluate this statement

Expert Solution

A monopoly firm is a single seller because there are barriers to entry. In a pure monopoly industry, there is a single firm. The barriers to entry are those factors which lead to the restriction of entry by the new firms. These are patent laws that restrict the entry of new firms. License and copyrights are also an example of barriers to entry. Therefore a monopolist firm has the market power, so it can charge any prices and quantity because consumers do not have any options..

Since the firm is a single seller of the goods and firm is a price maker and therefore for selling more units the monopolist firm needs to decrease the price. This is the reason why at each output level, marginal revenue is less than the price because price should be lowered to increase sales quantity.

Since the profit-maximizing condition for the monopoly is

MR=MC

Corresponding to this condition the output is determined and on the demand curve, the price will be determined

Rahul Sunny answered 7 months ago

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