Monopoly question help

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  • #3065490
    some_tear
    Participant

    Compared to firms in a perfectly competitive market, a monopolist tends to:

    a. Produce substantially more and charge a higher price.
    b. Produce the same output and charge a higher price.
    c. Produce substantially less but charge a higher price.
    d. Produce substantially less and charge a lower price.

    It says the answer is C.

    I get why a monopolist would charge a higher price but why would they produce less?

    #3066042
    Recked
    Participant

    Best to use the supply demand charts to understand these types of questions.
    Assume demand remains the same. The only way to achieve a higher price with static demand is the move the supply curve to the left, ie: restrict supply to achieve a higher price.
    The only way this actually works is in a monopolistic type data set.

    Here is a link to a chart, in case you are not sure the chart I am talking about.
    https://boycewire.com/wp-content/uploads/2019/11/Untitled-Document-3-1-e1572690505112.png

    I would always draw this chart out for every question that was asked on economics.
    It's simple enough to visualize it in your mind, but you can easily mix things up without realizing it and get the answer wrong. Helps to proof yourself by drawing it out.

    Not exactly monopolistic, but think of a Ferrari or Lamborghini.
    No matter how many they produce, there is still a very limited demand, so producing more would result in a lower price because the demand curve does not move. Limited amount of people want to buy (or can buy) those cars.
    Also think of the local cable company, assuming you only have one service provider in your area.
    Limited demand due to the limited number of households in your area. You can raise the price, but after a certain point you will end up losing people who would rather go without, instead of paying too much. You can't increase the demand beyond the set numbers of households in your area.

    Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

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