Identify the truthfulness of the following statements.
I. IEPR states that the monopolist's optimal markup of price above marginal cost can be expressed as follows: the monopolist's optimal markup, expressed as a percentage of price, is equal to minus the inverse of the price elasticity of demand.
II. IEPR tells us that the price elasticity of demand plays a vital role in determining what price a monopolist should charge to maximize profits.

Question

Identify the truthfulness of the following statements. 
I. IEPR states that the monopolist's optimal markup of price above marginal cost can be expressed as follows: the monopolist's optimal markup, expressed as a percentage of price, is equal to minus the inverse of the price elasticity of demand.
II. IEPR tells us that the price elasticity of demand plays a vital role in determining what price a monopolist should charge to maximize profits.

Quizplus · Accepted Answer

Both statements are true. Statement I is a well-known formula in industrial organization economics for calculating the monopolist's optimal markup, and statement II is a key implication of the theory of monopolistic pricing.

Identify the Truthfulness of the Following Statements