The ability of a monopoly to charge a price that exceeds marginal cost depends on the
A)price elasticity of supply.
B)price elasticity of demand.
C)slope of the demand curve.
D)shape of the marginal cost curve.

Question

Quizplus · Accepted Answer

The price elasticity of demand determines how sensitive consumers are to changes in price. If demand is inelastic, meaning that consumers are not very responsive to changes in price, the monopoly can charge a higher price without losing many customers. This allows the monopoly to charge a price above their marginal cost and earn higher profits. Therefore, the ability to charge a price above marginal cost depends on the price elasticity of demand.

The Ability of a Monopoly to Charge a Price That