Firm A has price elasticity of demand of -1.5 and a marginal cost of $30. Firm B has a price elasticity of demand of -2.0 and a marginal cost of $30. The profit-maximizing price for Firm A is $____.

Question

Quizplus · Accepted Answer

The profit-maximizing price can be found using the formula P = MC / (1 + (1/E)), where P is the price, MC is the marginal cost, and E is the price elasticity of demand. For Firm A, with a price elasticity of demand of -1.5 and a marginal cost of $30, the calculation is P = 30 / (1 + (1/-1.5)) = 30 / (1 - 2/3) = 30 / (1/3) = 90.

Firm a Has Price Elasticity of Demand of -1