Question 14
Market StructuresIf the demand curve facing a firm is sharply downward-sloping, the firm is likely to be
- A.a monopolistic competitor as it can have a limited influence on price
- B.a monopolist as it can have a great influence on price
- C.a perfect competitor as it cannot influence the market price
- D.an oligopolist as it can collude with other firms to have some influence on price
Show the answer and explanation
Answer: B (a monopolist as it can have a great influence on price)
Explanation
A steep (inelastic) downward-sloping demand curve means there are no close substitutes, which is the case of a monopolist with great power over price.