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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.

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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050
BuyFind

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050

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Chapter
Section
Chapter 15, Problem 7PA
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.

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