Question

Is a monopolist a price taker? Explain briefly.

Short answer

In conclusion, a monopolist is not a price taker. This is because a monopolist has control over the supply and price of a product or service in a market with high barriers to entry, while a price taker must accept the prevailing market price in a perfectly competitive market with identical products and numerous participants. The monopolist determines the price by considering the demand curve and its marginal revenue and marginal cost to maximize profits, whereas the price taker bases production decisions on costs and the market price.

Step-by-step solution

Defining Monopolist

A monopolist is a single seller dominating an entire market or having a significant share in the market, selling a unique product or service without close substitutes. In a monopolistic market structure, barriers to entry prevent other companies from entering the market, thus allowing the monopolist to have control over the supply and price of the product.

Defining Price Taker

A price taker is an individual or firm that has no control over the price of a product or service in a market and must accept the prevailing market price at which the product or service is sold. Price takers generally exist in perfectly competitive markets, wherein many buyers and sellers are trading identical products, and no individual firm has the power to affect the price.

Comparing Monopolist and Price Taker

Now that we understand the definitions of a monopolist and price taker, it's essential to make a comparison between the two. As mentioned earlier, a monopolist exists in a market with high barriers to entry, whereas a price taker exists in a perfectly competitive market with free entry and exit of firms. A monopolist has control over the supply and price of a product, determining the price based on the demand curve and its marginal revenue and marginal cost. In contrast, a price taker, due to the large number of participants and identical products in the market, cannot set the price for the product and must accept the prevailing market price.

Answering the Question

So, is a monopolist a price taker? The answer is no. A monopolist has control over the price of a product or service since they are the sole supplier of the good in the market, unlike a price taker who has no say in determining the price and must accept the going market rate. Monopolists set the price to maximize their profits, whereas price takers only consider their costs and the market price when making production decisions.