The demand curve facing the monopolist in the foreign market is__________

1. Analyze the question The question asks about the demand curve a monopolist faces in the foreign market. This is a price-discrimination or dumping situation, where a monopolist sells in the home market and also exports.

2. Explain the concept

• In the home market, the monopolist is the only seller. It faces a downward-sloping demand curve and has the power to set the price, so demand is relatively inelastic.
• In the foreign market, the monopolist is just one of many sellers. It competes with many other suppliers and has no power over price. It must accept the world price.
• A firm that is a price taker faces a horizontal demand curve. This means demand is perfectly elastic: if it charges even slightly above the market price, it loses all its customers.

3. Step-by-step solution

• Step 1: Identify the market. It is foreign, so it is highly competitive.
• Step 2: The monopolist has no control over price there, so it is a price taker.
• Step 3: A price taker faces a horizontal demand curve (P = AR = MR).
• Step 4: A horizontal demand curve means perfectly elastic demand (elasticity = ∞).

4. Answer The correct option is C. Perfectly elastic.

5. Exam tip Remember: "Home = Inelastic, Abroad = Elastic." In price discrimination questions, the market with more competition and more substitutes has more elastic demand, so the monopolist charges a lower price there. This is why dumping happens: goods are sold cheaper abroad than at home.