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A monopolist estimates that at the current price being charged for the product, price elasticity...

Question:

A monopolist estimates that at the current price being charged for the product, price elasticity of demand is -0.8. Marginal cost is constant over all levels of production at $5.50 per unit. To increase profit, the monopolist can and should:

a. increase price and sell less

b. increase price and sell more

c. decrease price and sell less

d. decrease price and sell more

Price Elasticity of Demand

The price elasticity of demand is a measure of the reaction of consumers to change in prices. The reaction is inelastic if a change in price does not alter quantity demanded. The reaction is elastic when a change in price being a significant change in the quantity demanded

Answer and Explanation: 1


The answer is a. increase price and sell less.

One rule regarding price elasticity of demand is when the absolute value of demand is less than one increasing the price will increase the total revenue. In this case, the marginal cost is constant; therefore, raising the price will increase revenue and increase profit.


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Price Elasticity of Demand in Microeconomics

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Chapter 2 / Lesson 11
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In microeconomics, the principle of price elasticity of demand is important to understand. Learn the definition of price elasticity of demand, understand the formula and its categories, and see some calculation examples.


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