The Ramsey pricing rule shows that the _______ elastic the demand for a good is, the more its price will _____________ its marginal cost

Question

Quizplus · Accepted Answer

The Ramsey pricing rule suggests that to minimize the welfare loss from a monopoly setting prices above marginal cost, goods with less elastic demand should have a higher markup over marginal cost. This is because consumers of these goods are less sensitive to price changes, making it more efficient in terms of minimizing distortions in consumption.

The Ramsey Pricing Rule Shows That the _______ Elastic the Demand