A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product.
A) elastic; demand
B) inelastic; demand
C) elastic; supply
D) inelastic; supply

Question

Quizplus · Accepted Answer

A monopolist will tend to charge a higher price when the demand for its product is inelastic because consumers will be willing to pay a higher price for the product. If the demand is elastic, consumers will be more likely to switch to substitutes if the price is too high, so the monopolist will not be able to raise the price as much. This means that the higher the inelasticity of demand, the more the monopolist can increase the price above marginal cost.

A Monopolist Can Raise Its Price Further Above Marginal Cost