Suppose that the elasticity of demand at a competitive equilibrium is 2.50.If the price under
Monopoly is 10 percent higher than under perfect competition,assuming identical cost curves,one can conclude that the monopoly output is _____ percent below of the competitive output.
A)25
B)40
C)2.5
D)4

Question

Quizplus · Accepted Answer

The elasticity of demand is 2.50, which means a 1% increase in price leads to a 2.5% decrease in quantity demanded. If the monopoly price is 10% higher, the quantity demanded (and thus output) would decrease by 10% * 2.5 = 25%.

Suppose That the Elasticity of Demand at a Competitive Equilibrium