Think a price making firm (monopolist) with a downward-sloping demand curve is one with a price elasticity of demand equal to-1. This is illustrated in the following diagram. P=AR 20 X Expenditure stays the same as price changes
Think a price making firm (monopolist) with a downward-sloping demand curve is one with a price elasticity of demand equal to-1. This is illustrated in the following diagram. P=AR 20 X Expenditure stays the same as price changes
Chapter9: Monopoly
Section: Chapter Questions
Problem 6SQP
Related questions
Question
Transcribed Image Text:Question 4
Think a price making firm (monopolist) with a downward-sloping demand curve is one with a price elasticity
of demand equal to-1. This is illustrated in the following diagram.
P=AR
20
Expenditure stays the
same as price changes
TR
AR = =
Q
d (TR)
dQ
Slope = b/Q
40
100
Diagram 5 Unit elastic demand (Pe=-1)
MR =
As price and quantity change by the same proportion, total revenue is the same at each price (the TR curve is
horizontal). This gives the following TR, AR and MR equations:
TR=b
b
-D (AR)
Q
= 0
Q
As TR is constant at all outputs, so MR must equal zero. In diagram 5, what is the value of b in equation
TR=b?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc