Will an increase in the demand for a monopolist’s product always result in a higher price? Explain. Will an increase in the supply facing a monopsonist buyer always result in a lower price? Explain.

 As illustrated in Figure 10.4b in the textbook, an increase in demand need not always result in a higher price.  Under the conditions portrayed in Figure 10.4b, the monopolist supplies different quantities at the same price.  Similarly, an increase in supply facing the monopsonist need not always result in a higher price.  Suppose the average expenditure curve shifts from AE1 to AE2, as illustrated in Figure 10.1. With the shift in the average expenditure curve, the marginal expenditure curve shifts from ME1 to ME2.  The ME1 curve intersects the marginal value curve (demand curve) at Q1, resulting in a price of P.  When the AE curve shifts, the ME2 curve intersects the marginal value curve at Q2 resulting in the same price at P.