A look at the graph shows that profits have been greatly reduced to the blue shaded area. Prior to the drop in demand profits were the green shaded area.

    A reduction in demand will make a monopolist less profitable. In this case, the firm remains in business since it isn't incurring losses. However, it is possible for a reduction in demand to lead to elimination of the entire industry if it can't recover, since there are no market forces that will naturally correct the problem.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved