Question

Identify the market. price maker with constraints.

Answer 1

What is a 'Price Maker'

A price maker is a monopoly or a firm within monopolistic competition that has the power to influence the price it charges as the good it produces does not have perfect substitutes. A price maker that is a firm within monopolistic competition produces goods that are differentiated in some way from its competitors' products. This kind of price maker is also a profit-maximizer as it will increase output only as long as its marginal revenue is greater than its marginal cost, so in other words, as long as it's producing a profit.

BREAKING DOWN 'Price Maker'

In a free enterprise system, prices are greatly determined by supply and demand. Buyers and sellers exert influence over prices, resulting in a state of equilibrium. However, in a monopolistic environment, one company has absolute control over the supply released into the market, allowing that business to dictate prices. Without competition, the seller may keep prices artificially high without concern for price competition from another provider. The scenario is typically unfavorable for consumers, as they have no way to seek alternatives that may lower prices.