Answer to Question #75188 in Microeconomics for SHEHZAAD

Question

Lonewolf Ltd is the sole manufacturer and supplier of solar panels in the country. As a result of this the CEO claimed in a recent meeting that he can set any price he wishes and sell as many units of his product as he wants at that price. Is this correct? Motivate your answer.

Answer 1

I find this to be correct. Lonewolf ltd can be described as a monopoly enterprise because they are the only sellers and distributors of solar panels in the country. Therefore, they are free to set any price they choose and will obviously go with the price that yields maximum profit. However, if this enterprise is more profitable than competitive enterprises, I expect other entrepreneurs to enter the solar business to gain some of the higher returns. If enough rivals enter the solar business then the prices will go down due to competition. it will be the end of the monopoly power (Stigler, 1950).