Suppose that the elasticity of demand at a competitive equilibrium is 2.50.If the price under monopoly is 10 percent higher than under perfect competition,assuming identical cost curves,one can conclude that the monopoly output is _____ percent below of the competitive output.
A)25
B)40
C)2.5
D)4

Question

Quizplus · Accepted Answer

The elasticity of demand is 2.50, which means that a 10% increase in price will lead to a 25% decrease in quantity demanded. Since the price under monopoly is 10% higher than under perfect competition, we can expect the quantity demanded under monopoly to be 25% lower than under perfect competition.

Suppose That the Elasticity of Demand at a Competitive Equilibrium