| Monopolies and price-elasticity I'm confused by what I read in a text book about monopolies that seems to be a contradiction:
The monopolist has reduced output in order to push up price-
i) The price charged is always in the upperhalf (the price-elastic part) of the demand curve.
ii)The fewer subtitutes avaliable, the less choice there is for the consumer, the steeper (less price-elastic) the demand curve, the greater the price that can be charged.
What I don't understand is the price-elasticity part. I understand that if the producer produces on the elastic part of the demand curve then, at it's restricted output, a drop in price will see a boost in demand.
What confuses me is the second bit i.e what does a steeper, less-price elastic demand curve have to do with it? Doesn't that contradict the first part about producing on the elastic-part of the curve. If it doesn't then why bother produce on the elastic part?
Thanks |