Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 11

Suppose that the market for hula hoops is monopolized by a single firm.
a. Draw the initial equilibrium for such a market.
b. Suppose now that the demand for hula hoops shifts outward slightly. Show that, in general (contrary to the competitive case), it will not be possible to predict the effect of this shift in demand on the market price of hula hoops.
c. Consider three possible ways in which the price elasticity of demand might change as the demand curve shifts outward-it might increase, it might decrease, or it might stay the same. Consider also that marginal costs for the monopolist might be rising, falling, or constant in the range where MR = MC. Consequently, there are nine different combinations of types of demand shifts and marginal cost slope configurations. Analyze each of these to determine for which cases it is possible to make a definite prediction about the effect of the shift in demand on the price of hula hoops.