A monopolist will maximize its profits by charging a higher price for customers with a price elasticity of
A) 0.7.
B) 1.
C) 1.5.
D) 10.

Question

Quizplus · Accepted Answer

A monopolist will maximize its profits by setting the price where marginal revenue (the additional revenue from selling one more unit) is equal to marginal cost (the additional cost of producing one more unit). With two possible price points (high for inelastic demand customers and low for elastic demand customers), a monopolist will set a high price for customers with low price elasticity of demand (inelastic demand), since they are willing to pay a higher price for the product. A price elasticity of 0.7 indicates relatively inelastic demand, meaning customers are not very responsive to price changes. Therefore, a monopolist will maximize profits by charging a higher price to these customers.

A Monopolist Will Maximize Its Profits by Charging a Higher