The demand curve of a monopoly firm will be:a)Verticalb)Straight linec)Downward slopingd)Upward slopingCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

Demand Curve of a Monopoly Firm

A monopoly firm is the sole producer of a product or service in the market, giving it the power to set prices and control the quantity supplied. The demand curve for a monopoly firm will be:

Downward sloping: The demand curve of a monopoly firm is always downward sloping.

Explanation: This is because a monopoly firm has control over the market and can influence the price. As the monopolist increases the price of its product, the quantity demanded by consumers decreases. Conversely, if the monopolist lowers the price, the quantity demanded increases.

Reasons for downward sloping demand curve:
- No close substitutes: In a monopoly, there are no close substitutes available for the monopolist's product, so consumers have limited options.
- Market power: The monopolist has market power and can influence the price, leading to a negative relationship between price and quantity demanded.
- Barriers to entry: Monopoly firms often have barriers to entry, such as patents, high startup costs, or exclusive control over resources, which limit competition and allow them to maintain their market power.

Therefore, the correct answer is C: Downward sloping.

Answer

Explanation:

Downward sloping:
- The demand curve of a monopoly firm is downward sloping.
- This means that as the price of the product decreases, the quantity demanded by consumers increases.
- Monopoly firms have the power to set prices due to their control over the market, resulting in a downward sloping demand curve.

Reasons for downward sloping demand curve:
- Monopoly firms are the sole sellers in the market, giving them the ability to influence prices.
- Consumers have no other alternative but to buy from the monopoly firm, allowing the firm to lower prices to increase demand.

Impact on pricing:
- Monopoly firms often set prices higher than in a competitive market to maximize profits.
- The downward sloping demand curve allows the monopoly firm to find the optimal price point where they can sell the most units at the highest price.

Market power:
- The downward sloping demand curve reflects the market power of a monopoly firm.
- The firm can manipulate prices and output levels to maximize profits, unlike in a competitive market where prices are determined by supply and demand forces.
In conclusion, the demand curve of a monopoly firm is downward sloping due to the firm's market power and ability to set prices. This allows the firm to maximize profits by finding the optimal price point where quantity demanded is maximized.

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