Monopolists make substantial profit because they face inelas

Monopolists make substantial profit because they face inelastic demand for their product. Do you agree? Explain.

Solution

Monopolist is the single seller of the product in the market. That is why, it faces a market demand curve. This demand curve is less than perfectly elastic. Monopolist produces at an elastic portion of the demand curve. To maximise, produces at a point where marginal revenue is equal to marginal cost.Therefore, when monopolist decreases the price of its product, the demand increases. This causes an increase in total revenue.

It makes substantial profits because unlike perfect competition it can deccrease the price of its products and hence increase the demand for its profit and hence profits.