Suppose a monopolist faces the constant price elasticity demand curve:
p = Q?
where ? < 0. The monopolist has a constant marginal cost of c.
a. If ? < -1, can you determine what price and quantity will the monopolist set? Explain.
b. If 0 > ? > -1, what is the price and quantity the monopolist will set?
a. The necessary condition is:
(1 + ε)Qε = c
For ε < -1, the condition cannot be met — the monopolist can always raise the price and increase total revenue (and reduce total cost).
b. The optimal quantity is (c/(1 + ε))1/ε and price is c/(1 + ε).
You might also like to view...
In repeated games, all of the following allow a firm to escape an inefficient "prisoners dilemma" equilibrium except
a. Be nice, don't strike first b. Respond immediately to non-cooperation c. Punish competitors as much as you can d. Make sure your competitors can easily interpret your actions
Half of all your potential customers would pay $16 for your product but the other half would only pay $10 . You cannot tell them apart. Your marginal costs are $4 . If you set the price at $16, the expected profit is:
a. $3 b. $4 c. $5 d. $6
Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon also quit his job as a waiter, which paid $20,000 . According to an economist, Jaxon's opportunity cost of opening the tattoo parlor equals $20,900
a. True b. False Indicate whether the statement is true or false
In the model of perfect competition, the market demand curve is found by
A. horizontally summing the demand curves of individual consumers. B. horizontally summing the supply curves of individual firms. C. a marketing analysis. D. taking the demand curve of a "representative consumer" and expanding it by the number of consumers of the good.