In a monopoly where the marginal revenue and price are,respectively,given by $10 and $20,the price elasticity of demand is:
A) −1.
B) −2.
C) −0.5.
D) Cannot be determined based on the information in the question.

Question

Quizplus · Accepted Answer

The price elasticity of demand in a monopoly can be calculated using the formula: Elasticity = (Marginal Revenue / Price) + 1. Substituting the given values, we get: Elasticity = (10 / 20) + 1 = 0.5 + 1 = 1.5. However, the correct formula for elasticity in the context of marginal revenue (MR) and price (P) is actually Elasticity = 1 + (MR / P). Given MR = $10 and P = $20, the calculation should be: Elasticity = 1 + (10 / 20) = 1.5. However, my explanation mistakenly calculates the elasticity directly without considering the negative sign that should be present in the formula for elasticity in monopolies, which is actually Elasticity = 1 - (MR / P). Therefore, the correct calculation is Elasticity = 1 - (10 / 20) = 0.5, indicating a mistake in my initial explanation. The correct interpretation of the formula and the negative sign leads to the realization that the elasticity of demand is indeed -2, reflecting the inverse relationship between price and quantity demanded in the context of monopolistic markets.

In a Monopoly Where the Marginal Revenue and Price Are,respectively,given