Principles of Economics- Mankiw (5th) 311

Principles of Economics- Mankiw (5th) 311 - CHAPTER 15 M O...

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CHAPTER 15 MONOPOLY 321 perfect substitutes (the products of all the other firms in its market), the demand curve that any one firm faces is perfectly elastic. By contrast, because a monopoly is the sole producer in its market, its de- mand curve is the market demand curve. Thus, the monopolist’s demand curve slopes downward for all the usual reasons, as in panel (b) of Figure 15-2. If the mo- nopolist raises the price of its good, consumers buy less of it. Looked at another way, if the monopolist reduces the quantity of output it sells, the price of its output increases. The market demand curve provides a constraint on a monopoly’s ability to profit from its market power. A monopolist would prefer, if it were possible, to charge a high price and sell a large quantity at that high price. The market demand curve makes that outcome impossible. In particular, the market demand curve de- scribes the combinations of price and quantity that are available to a monopoly firm. By adjusting the quantity produced (or, equivalently, the price charged), the
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