Refer to the figure above. How many chairs does Lithasia import ...

[vicotolentino]

Refer to the figure above. How many chairs does Lithasia import when the government imposes a tariff of 1 per unit?
 
  A) 10 units
  B) 20 units
  C) 30 units
  D) 40 units

Question 2

A monopoly, unlike a perfect competitor, has total control in its market because it is the single producer. Why, then, must a single-price monopoly decrease its price if it wants to increase its output?
 
  What will be an ideal response?

[ju]

Answer to Question 1

D

Answer to Question 2

Because the monopoly does control the market, the monopoly sets the price at the maximum level that sells all the output the monopoly produces. This maximum price is determined from the demand for the product. The downward sloping market demand curve shows that the only way to increase the quantity consumers will buy is to lower the price. As a result, when a monopoly wants to produce more output, demanders will not buy the additional output at the initial price. As the downward sloping demand curve indicates, in order to sell the extra production, the monopolist must lower its price.