Explain how the market demand curve has a constraint facing a monopoly firm?
Dear Student,
The monopoly firm is constrained by the negatively sloped market demand curve. This curve shows 'High-quantity demanded' when 'Low-price' is charged and 'Low-quantity demanded' when 'High-price' is charged.
As monopoly firm can neither fix the price nor the quantity to be demanded, thus, it chooses a combination of both that maximises its profits.
If it could fix both, then it would choose a high-quantity and ofcourse a high price combination so that it would fetch it utmost profits. However, for maximum quantity and maximum price, the demand cure should be upward sloping which is not so in case of market demand curve. Thus, it continues to be a constraint to monopoly firms.
Hope this answers your query.
Keep posting!!
The monopoly firm is constrained by the negatively sloped market demand curve. This curve shows 'High-quantity demanded' when 'Low-price' is charged and 'Low-quantity demanded' when 'High-price' is charged.
As monopoly firm can neither fix the price nor the quantity to be demanded, thus, it chooses a combination of both that maximises its profits.
If it could fix both, then it would choose a high-quantity and ofcourse a high price combination so that it would fetch it utmost profits. However, for maximum quantity and maximum price, the demand cure should be upward sloping which is not so in case of market demand curve. Thus, it continues to be a constraint to monopoly firms.
Hope this answers your query.
Keep posting!!