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 ______. A) higher; D₂ B) higher; D₁ C) lower; D₂ D) lower; D₁

Question

Quizplus · Accepted Answer

The monopolist should charge a higher price in the inelastic market, represented by the demand curve D₂, because consumers in this market are less price sensitive and therefore willing to pay more for the product. Since the marginal cost is the same in both markets, charging a higher price in the inelastic market will result in a higher profit margin for the monopolist.

Figure: Two Demand Curves a Monopolist Sells Its Output