Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is
A) greater or equal to one.
B) less than one.
C) equal to one.
D) impossible to determine.

Question

Quizplus · Accepted Answer

At the output quantity where total revenue is maximized, the monopolist produces at the point where the marginal revenue equals marginal cost. Since demand is linear, the marginal revenue is also linear and has the same intercept as the demand curve but twice the slope. Therefore, the price elasticity of demand at that output quantity is always equal to one, which means that a 1% change in price will result in a 1% change in quantity demanded.

Assume That a Monopolist Faces a Linear Demand Curve and That