Answer to Question #203700 in Macroeconomics for saif

Question

Cinema has a monopoly on the rights to show movies throughout the city. The monopolist knows the price elasticities of demand for movies by children and adults which are 4 and 0.22 respectively. Suppose the monopolist can charge different prices for the children and adults.

Explain why the monopolist can charge different prices.    

Explain for whom shall the monopolist charge higher prices and why. Draw graph to support your answer.

Answer 1

Monopolist may charge any price it wants for its product, the demand for its services limits the price. Consumers cannot be forced to buy a monopolist's product and services, even if it is well-protected by strong obstacles to entry. The monopolist's demand curve is identical to the market demand curve since it is the sole business in the market. The monopolists has control over the prices depending on the demand of the movies and the period. Children will charged higher compared to adults because they are mostly interested with movies and they have a lot of free time. The monopolist is aware of the higher demand of throughout the city and knows the price elasticity.