Which of the following formulas calculates the profit-maximising price?
A) (Total variable cost + total fixed cost) / price elasticity of demand
B) Variable cost × [elasticity / (elasticity + 1)]
C) Total variable cost + total fixed cost
D) Total cost × [elasticity / (elasticity + 1)]

Question

Quizplus · Accepted Answer

The formula for calculating the profit-maximising price under monopolistic or imperfect competition is given by setting marginal revenue equal to marginal cost. The formula B, Variable cost × [elasticity / (elasticity + 1)], is derived from this principle, taking into account the price elasticity of demand. This formula helps in determining the price that maximizes profit by considering the cost of producing one more unit (marginal cost) and how sensitive consumers are to price changes (price elasticity of demand).

Which of the Following Formulas Calculates the Profit-Maximising Price