Figure: Two Demand Curves A monopolist sells its output in two markets, each with different demand curves as shown in this figure. If the marginal cost is identical in both markets, the monopolist should charge a ______ price in the inelastic market, represented by the demand curve ______.

Question

Figure: Two Demand Curves  A monopolist sells its output in two markets, each with different demand curves as shown in this figure. If the marginal cost is identical in both markets, the monopolist should charge a ______ price in the inelastic market, represented by the demand curve ______.

Quizplus · Accepted Answer

The monopolist should charge a higher price in the inelastic market, as a small change in price will have a relatively small effect on quantity demanded. Therefore, the correct answer is A, as the market represented by demand curve D₂ is more inelastic than the other market represented by demand curve D₁.

Figure: Two Demand Curves a Monopolist Sells Its Output