A monopoly chocolate manufacturer faces two types of consumers. The larger group, the hoi polloi, loves desserts and has a relatively flat, linear demand curve for chocolate. The smaller group, the snobs, is interested in buying chocolate only if the hoi polloi do not buy it. Given that the hoi polloi do not buy the chocolate, the snobs have a relatively steep, linear demand curve. Show the monopoly’s possible outcomes—high price, low quantity, low price, high quantity—and explain the condition under which the monopoly chooses to cater to the snobs rather than to the hoi polloi
Under foreign competition, the domestic residual demand curve could shift down to the point where it is under the average cost curve, driving the home company out of business.