Question
Demand curve facing a monopoly firm is a constraint for the monopolist." Comment.
✓
Answer
- A monopoly firm has market power and is itself a price-maker. It can choose any price, it likes.
- Unlike perfect competition where as output increases, price remains unchanged.
- In monopoly as output increases or decreases, price changes according to what consumers are willing to pay along the demand curve. It produces and supplies a product to satisfy the entire market.
- It is because a monopoly firm faces the entire demand of the market, that market demand curve is said to be a constraint facing a monopoly firm.
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