Why is it not correct to say that a monopoly, because it is the only firm in the market, can choose to set whatever price it wants?

Marketing Jan 09, 2021

Expert Solution

In a monopoly, the monopolist is the sole producer and thus faces the entire market demand curve. According to the law of demand, the market demand curve is downward sloping, i.e., in order to sell more units, the price must be lowered. In other words, the monopolist faces a trade-off between price and quantity. If the monopolist wants to sell more, it must set a lower price. In this way, the monopolist cannot choose to set whatever price it wants, if it wants to maximize profit.

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