A monopoly is able to increase the markup of price over marginal cost:
A) when the demand is more price-elastic.
B) when the demand is less price-elastic.
C) when there is more marginal revenue per unit sold.
D) at will regardless of price-elasticity.

Question

Quizplus · Accepted Answer

Monopolies have market power and can increase their prices above the competitive level. However, the extent to which a monopoly is able to increase its price markups over marginal cost depends on the price elasticity of demand. When demand is less price-elastic, the firm has more pricing power and can increase its markups to a greater extent compared to when demand is more price-elastic. Therefore, the best choice is B, when the demand is less price-elastic.

A Monopoly Is Able to Increase the Markup of Price