Answer to Question #98319 in Microeconomics for Shafiqah

Question

1-i.Compare a perfectly competitive market and monopoly by sketching a suitable graph

ii.Will an increase in the demand for a monopolist’s product always result in a higher price?
Explain by using a suitable graph

Answer 1

In a perfectly competitive market the firms are price takers while in monopoly the firms are always price makers this is shown in the sketch below

The demand for a monopolistic product will result to higher price because when demand is inelastic the graph below shows it

With the graph above market shifts the demand when it's faced by a monopolistic competitive firm. This varies with the amount of tax imposed which causes changes to occur between D₀ to D₁ while the curve shifts from D₁ to D₀ for the consumers when they are paid subsidy in the monopolists product.