When demand is relatively elastic, monopolists will charge:
A) a higher markup.
B) a lower markup.
C) the same markup as when demand is relatively inelastic.
D) a price equal to marginal cost.

Question

Quizplus · Accepted Answer

When demand is relatively elastic, consumers are more price-sensitive, so a higher markup would lead to a larger decrease in quantity demanded, resulting in lower profits for the monopolist. Therefore, the monopolist is likely to charge a lower markup in order to increase demand and maximize profits.

When Demand Is Relatively Elastic, Monopolists Will Charge