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.
Principles of Microeconomics
Principles of Microeconomics
Solutions
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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