Answer to Question #178198 in Microeconomics for Roshan

Question

monopoly firms ability to set its price is limited by the the demand curve for its product and in particular price elasticity of demand for its product do you agree? explain using illustration

Answer 1

Yes, I agree.

EXPLANATION

Monopoly firms are price makers. The price set by a monopoly firm for a particular product/service is limited by the willingness and of the buyer to purchase.

Example

Suppose that an agrochemical firm is patented to sell herbicides, it will face an inverse demand curve as shown below.

The curve is equal to:

P=100-Q^d

P= herbicide price per kg

Q^d =Quantity demanded in kg

The price set at P=60, consumers will buy quantity 40.