For a profit-maximizing monopoly firm,the relationship between price [P],marginal revenue [MR],and the absolute value of the price elasticity of demand [$\eta$] is given by:

Question

Quizplus · Accepted Answer

The correct formula for a profit-maximizing monopoly firm is MR = P[1 - (1/F1F1F1S1F1F1F10)], which matches option D. This formula shows that the marginal revenue (MR) of a monopoly firm is equal to the price (P) times the quantity [1 - (1/F1F1F1S1F1F1F10)], where F1F1F1S1F1F1F10 is the absolute value of the price elasticity of demand. This quantity reflects the impact of a change in price on the quantity of goods demanded by consumers. Since a monopoly firm faces a downward sloping demand curve, it must lower its price to sell more units, which in turn lowers its marginal revenue. Thus, the formula for MR takes into account both the price and demand elasticity when determining the profit-maximizing level of output.

For a Profit-Maximizing Monopoly Firm,the Relationship Between Price [P],marginal Revenue η\etaη

For a Profit-Maximizing Monopoly Firm,the Relationship Between Price [P],marginal Revenue $\eta$