A monopoly incurs a marginal cost of $1 for each unit produced.If the price elasticity of demand equals -2.0,the monopoly maximizes profit by charging a price of
A) $1.00.
B) $1.50.
C) $2.00.
D) $3.00.

Question

Quizplus · Accepted Answer

The monopoly maximizes profit where marginal revenue equals marginal cost. With an elasticity of -2, the markup formula (P - MC)/P = -1/elasticity gives (P - 1)/P = 0.5, leading to P = 2.

A Monopoly Incurs a Marginal Cost of $1 for Each