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Homework answers / question archive / As a monopolist uses its market power to increase quantity-demanded by lowering its product price, how is the monopolist’s Marginal Revenue (MR) affected by the price elasticity of demand (Ep) (Elastic, Unitary or Inelastic) along the monopolist’s Demand Curve

As a monopolist uses its market power to increase quantity-demanded by lowering its product price, how is the monopolist’s Marginal Revenue (MR) affected by the price elasticity of demand (Ep) (Elastic, Unitary or Inelastic) along the monopolist’s Demand Curve

Economics

As a monopolist uses its market power to increase quantity-demanded by lowering its product price, how is the monopolist’s Marginal Revenue (MR) affected by the price elasticity of demand (Ep) (Elastic, Unitary or Inelastic) along the monopolist’s Demand Curve.

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For a linear demand curve faced by a monopolist, the marginal revenue curve equals price at the lowest level of output. As output increases, marginal revenue decreases twice as fast as demand.


When a monopolist firm is facing an Inelastic demand curve (e<1). it maintains its current price levels or increase the price for profit expansion.

On the other hand, in case of an elastic demand curve (e>1), monopolist firm avoid increasing prices as the quantity demanded lost is amplified due to the elastic demand curve.

In view of the above, a monopolist prefers to be on the more elastic end of the demand curve in order to gain a positive marginal revenue.

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