A profit-maximizing monopolist faces a downward-sloping demand curve that has a constant elasticity of -3.The firm finds it optimal to charge a price of $12 for its output.What is its marginal cost at this level of output?
A)$5
B)$25
C)$24
D)$8
E)$12

Question

Quizplus · Accepted Answer

The marginal cost can be found using the formula for the optimal pricing rule for a monopolist, which is P = MC * (E / (E - 1)), where P is the price, MC is the marginal cost, and E is the price elasticity of demand. Given the constant elasticity of -3, we substitute P = $12 and E = -3 into the formula and solve for MC, which gives us MC = $8.

A Profit-Maximizing Monopolist Faces a Downward-Sloping Demand Curve That Has