Monopoly theory
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- Since a monopoly is the only source of supply, consumers are entirely at its mercy. There is no limit to the price the monopoly can charge?. Evaluate this statement.
- A monopoly´s profits are not necessarily bad, but its reduction in output is. Evaluate this statement.
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Solution Summary
The expert evaluates the statement "Since a monopoly is the only source of supply, consumers are entirely at its mercy. There is no limit to the price the monopoly can charge?. Evaluate this statement." They also evaluates "A monopoly´s profits are not necessarily bad, but its reduction in output is"
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Statement one: false.
Although a monopoly is the only supplier, it cannot charge unlimited price because a monopoly faces a downward sloping demand curve. As the monopoly raises its price, the consumer demand will decrease and this does not always increase profit.
Consider the following example. If price is $5, the monopoly sells ...
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