What describes the demand curve facing a monopolist?

• A. Horizontal
• B. Vertical
• C. Downward-sloping
• D. Perfectly elastic

Answer: (C)

The demand curve facing a monopolist is downward-sloping because the monopolist is the sole seller in the market and has the power to set the price. To sell more units, it must lower the price on all units, so quantity demanded rises only as price falls. This contrasts with a perfectly competitive firm, which faces a horizontal demand curve at the market price since many sellers keep the price fixed for each firm. A vertical demand curve would imply quantity demanded does not change when price changes, and a perfectly elastic demand would mean consumers would buy any amount at one price but nothing at any higher price—both of which don’t describe a monopolist’s situation. Remember, the monopolist’s marginal revenue lies below the price because lowering price to sell an additional unit also reduces revenue on all previous units.