The main constraint facing the ability of a natural monopolist to price its product is:
A)its labour costs
B)the regulations imposed by the government
C)nothing - there are no constraints on the price as the monopolist has all the power
D)the market demand curve

Question

Quizplus · Accepted Answer

The main constraint facing the ability of a natural monopolist to price its product is the market demand curve. As the only supplier in the market, the monopolist has significant market power to set prices. However, the demand curve represents the willingness and ability of consumers to pay for the monopolist's product at different prices. The monopolist must find the optimal price point that balances maximizing profits with the level of demand. If the monopolist sets the price too high, demand will decrease and they will earn less revenue. If they set the price too low, they risk leaving potential profits on the table. Therefore, the market demand curve acts as a constraint on the monopolist's pricing power.

The Main Constraint Facing the Ability of a Natural Monopolist