A monopolist faces a constant marginal cost of $1 per unit.If at the price he is charging, the price elasticity of demand for the monopolist's output is -0.5, then
A)the price he is charging must be $2.
B)the price he is charging must exceed $2.
C)the price he is charging must be less than $2.
D)the monopolist cannot be maximizing profits.
E)the monopolist must use price discrimination.

Question

Quizplus · Accepted Answer

A monopolist maximizes profit where marginal revenue equals marginal cost. If the price elasticity of demand is -0.5, the demand is inelastic, meaning marginal revenue is negative. Since marginal cost is positive, the monopolist cannot be maximizing profits.

A Monopolist Faces a Constant Marginal Cost of $1 Per