A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true?

Question

Quizplus · Accepted Answer

A negative value for price elasticity of demand indicates that an increase in price would lead to a decrease in quantity demanded. In this case, a price decrease would lead to an increase in quantity demanded.

Since the monopolist has determined that at the current level of output, the price elasticity of demand is -0.15, it means that the demand for its product is inelastic. In order to increase its revenue, the monopolist should decrease the quantity supplied, which would lead to an increase in the price. Therefore, the firm should cut output.

A Monopolist Has Determined That at the Current Level of Output