The optimal price for a monopolist facing different demand curves in two separate markets will be:
A) higher in the market with more elastic demand.
B) higher in the market with less elastic demand.
C) the same in both markets.
D) equal to marginal cost in each markets.

Question

Quizplus · Accepted Answer

The monopolist will set a higher price in the market with less elastic demand because the customers in that market are less responsive to price changes and are willing to pay a higher price. In contrast, lowering the price in the market with more elastic demand will increase the total revenue for the monopolist because customers in that market are more price-sensitive and a small decrease in price will lead to a significant increase in quantity demanded. Thus, to maximize profits, the monopolist will set a higher price in the market with less elastic demand and a lower price in the market with more elastic demand.

The Optimal Price for a Monopolist Facing Different Demand Curves