Question

lonelwolf Ltd is the sole manufature and supplier of solar panels in the country.As a result of this the CEO claimed a recent meeting that he can set any price he wishes and sell as many units of his product as he wants at that pric.Is this correct? motivate your answer

Answer 1

It is incorrect. As the demand of the solar panels in the country depends on its price and usage decision, a higher price is going to decrease demand for a product. As we know, Lone wolf Ltd is the sole manufacturer and supplier of solar panels in the country, Lone wolf CEO is taking monopolistic approach and thinks that he/she really can set any price, but at the same time the quantity of units sold at a certain price level is still determined by the demand curve. A final quantity of a sold good depends on demand from customers. That is why the CEO should also account this factor. As the quantity of units sold at a certain price is still determined by the demand curve, which has a downward character. Also, the solar panels are not basically a basic commodity, so the demand for them will be elastic, i.e. with an increase in the price, the quantity of units sold will decrease to a greater extent, and the total revenue will fall.