Suppose a monopolist knows the own price elasticity of demand for its product is −3 and that its marginal cost of production is constant MC(Q)= 10.To maximize its profit,the monopoly price is:
A) $1.50 per unit.
B) $6.67 per unit
C) $10 per unit.
D) $15 per unit.

Question

Quizplus · Accepted Answer

To maximize profit, a monopolist sets price where marginal revenue (MR) equals marginal cost (MC). The formula for MR in terms of elasticity (E) is MR = P(1 + 1/E). Given E = -3 and MC = 10, solve for P: 10 = P(1 + 1/-3), leading to P = $15.

Suppose a Monopolist Knows the Own Price Elasticity of Demand