Question 16

A monopolist determines the price charged based on the demand curve.

A monopolist sets the price of its product by examining the demand curve, which indicates how much consumers are willing to pay at various quantities. This relationship allows the monopolist to maximize profits by choosing a price that corresponds to the quantity sold.

A) Based on the total revenue curve

While the total revenue curve provides insights into how revenue changes with different prices and quantities, it does not directly determine the price. Instead, it is a tool that the monopolist may use after identifying the price through the demand curve to assess revenue implications.

B) Based on the average cost curve

The average cost curve helps a monopolist understand its cost structure, but it does not dictate the price charged. Prices are primarily determined by consumer willingness to pay, as reflected in the demand curve, rather than cost considerations alone.

C) Based on the supply curve

In a monopolistic market, there is no traditional supply curve as seen in competitive markets. The monopolist faces a downward-sloping demand curve, and thus, the supply curve does not play a role in setting the price charged for the product.

D) Based on the demand curve

The demand curve is fundamental for a monopolist in determining the price charged for its product. It illustrates how much quantity consumers will buy at different price points, allowing the monopolist to select a price that maximizes profit by aligning with the quantity produced.

Conclusion

The monopolist effectively utilizes the demand curve to set its price, as it directly reflects consumer preferences and willingness to pay. Other options, while relevant to different aspects of pricing and costs, do not serve as the primary determinant for the price in a monopolistic setting, making D the only correct choice.