Question

Monopoly manufacturer faces two types of consumers. The first type has a relatively​ flat, linear demand curve. The second type has a relatively​ steep, linear demand curve. Suppose the monopolist can choose the price and quantity for each type that maximizes its profits. For the first​ type, it will set a relatively_______. For the second type,it will set a relatively______
1. low price and high quantity
2. high price and low quantity
3. low price and low quantiyty
4. high price and high quantity

Answer 1

Answer:

In both cases, the correct answer is the option 2: high price and low quantity.

Explanation:

First of all, if the company has the ability to choose the price and quantity of the goods that it produces then it always should prefer to charge the higher price as possible with the lowest quantities of the goods.

Secondly, in the first case, where the consumers have a relatively flat, linear demand curve then it does not matter how much the company charges the good due to the fact that the consumer will always demand the same quantity and therefore if the price if high the amount is the same if the price is low because the demand curve is flat.

Finally, in the second case, where the consumers have a relatively steep, linear demand curve then if the price is high the quantity will be low and if the price is low the quantity will be high, therefore that the company should choose to charge a high price and for instance the quantity will be low due to the fact that the demand curve is steep.