The XYZ Company is a profit-maximizing firm with a monopoly in the production of pennants.The firm sells its pennants for $10 each.We can conclude that the XYZ Company is producing a level of output at which the demand for pennants is:
A) elastic.
B) unit price elastic.
C) inelastic.
D) perfectly inelastic.

Question

Quizplus · Accepted Answer

In a monopoly where the firm is profit-maximizing and able to set the price above marginal cost, the demand for its product must be elastic. At this point, lowering the price slightly increases total revenue, while raising the price decreases total revenue, indicating that the quantity demanded responds more than proportionately to price changes.

The XYZ Company Is a Profit-Maximizing Firm with a Monopoly