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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Consider the relationship between monopoly pricing and price elasticity of demand.

a. Explain why a monopolist will never produce a quantity at which the demand curve is inelastic. (Hint: If demand is inelastic and the firm raises its price, what happens to total revenue and total costs?)

b. Draw a diagram for a monopolist, precisely labeling the portion of the demand curve that is inelastic. (Hint: The answer is related to the margirval-revenue curve.)

c. On your diagram, show the quantity and price that maximize total revenue.

Subpart (a):

To determine
Monopoly pricing and price elasticity of demand.

Explanation

A monopolist will never produce a quantity at which the demand will be inelastic. This is because, if the firm produce at inelastic demand and the firm raise its price then the quantity would fall less proportionately than the rise in price...

Subpart (b):

To determine
Monopoly pricing and price elasticity of demand.

Subpart (c):

To determine
Maximize total revenue.

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