Chapter 11R, Problem 16MCQ

To determine

The correct option for given situation where demand curve for monopoly competition.

Answer to Problem 16MCQ

Option e is correct answer.

Explanation of Solution

Explanation for correct option:

e.

Demand curve for monopolist firm for normal goods will be downward sloping because of diminishing marginal utility. The marginal utility declines with the increase in quantity. This will increase the output level with decrease in price. Therefore, option e is correct.

Explanation for incorrect options:

a.

Demand curve is downward sloping as the prices decreases the level of output increases irrespective of substitution effect or income effect in case of monopoly where firms are price setters. Therefore, option a is incorrect. b.

In monopoly firms, substitution effect and income effect does not affect the demand curve much. Therefore, option b is incorrect. c.

In monopoly firms, marginal returns are not decreased. Therefore, option c is incorrect.

d.

In monopoly competition firms sells their products at their won prices which reduces the chances for price discrimination. Therefore, option d is incorrect.

Economics Concept Introduction

Supply and demand curve: Supply curve refers to the line that represents the relationship between the price of the product and the quantity that can be supplied by the producer. Demand curve refers to the relationship between price and the output at which consumers are ready to purchase.