On rigid demand curve DD1 if the monopolist increases the price from P to P1 the fall in the quantit

On rigid demand curve DD1 if the monopolist increases the price from P to P1 the fall in the quantit

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On rigid demand curve DD 1 if the monopolist increases the price from P to P 1 the fall in the quantity sold is as small as QQ 1 . On the flatter demand curve DD 2 with the same rise in price, a fall in the quantity sold is as large as NN 1 . In case of a flexible demand curve there is a danger that even at a higher price, the total revenue of a monopolist may be smaller. This has been further explained in the table below: Price Rigid Demand D 1 Total Revenue TR 1 Flexible Demand D 2 Total Revenue TR 2 2 6 12 20 40 4 5 20 8 32 6 4 24 5 30 A monopolist attempts to raise his price from 2 to 4 to 6.
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Unformatted text preview: As a result of this quantity demanded goes on falling. Yet in the case of Rigid Demand D 1 , with a fall in the demand from 6 to 5 to 4 Total Revenue TR 1 increases from 12 to 20 to 24. With the Flexible Demand condition D 2 the quantity demanded falls sharply from 20 to 8 to 5 causing Total Revenue TR 2 to fall from 40 to 32 to 30. Hence the slope or the degree of flexibility of the demand curve governs the degree of monopoly power....
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This note was uploaded on 11/26/2011 for the course ECON MICRO ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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