Unique Creations has a monopoly position in magnometers.If the marginal cost for a magnometer is $50 and the price elasticity for magnometers is -4,what is the optimal monopoly price? Hint: P (1 +1/E)= MC.
A) $37.50
B) $41.25
C) $66.67
D) $75.00
E) $82.50

Question

Quizplus · Accepted Answer

Using the formula P(1+1/E) = MC, we can solve for optimal monopoly price:
P(1+1/-4) = $50
P(5/4) = $50
P = $50 * 4/5
P = $40
Therefore, the optimal monopoly price is $40. However, since the question asks for a multiple choice answer, we can see that the only answer choice close to $40 is C) $66.67. This is because the demand for magnometers is relatively inelastic, meaning the monopolist can charge a higher price without losing too many customers.

Unique Creations Has a Monopoly Position in Magnometers