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2.13. You are the manager of a monopoly. If the marginal cost of your product is $100 and the price elasticity of demand for your product is 2, what markup of price over marginal cost do you set? If the price elasticity of demand is 3 rather than 2, what markup do you set? Use your knowledge of factors that affect the magnitude of the price elasticity of demand to your answers to parts a and b. MC=100 , PED=2 so, P=MC/[1+1/-PED)] eliminating the value =100/(1+1/-2) =100/(-2+1/-2) =100/(-1/-2) =100/(1/2) =200 P-MC=200-100 =100 A. Markup:100 When PED increases from 2 to 3, then =100/[1+(1/-3)] =100/(-3+1/-3) =100/(-2-3) =100*3/2 =300/2 =150 B. Markup=150-100=50

5.1. Explain how marginal analysis can help determine the profit-maximizing quantity for managers of monopolies, dominant firms, and monopolistically competitive firms. Marginal analysis can help determine the profit-maximizing quantity for managers of monopolies, dominant firms, and monopolistically competitive firms by considering the additional revenue and additional cost associated with producing one more unit of output. In the case of monopolies, marginal analysis involves comparing the marginal revenue (MR) and marginal cost (MC) of producing an additional unit. The profit-maximizing quantity occurs where MR equals MC. For dominant firms, marginal analysis also involves comparing MR and MC. However, dominant firms may have market power but not complete control over the market, so they need to consider the potential impact on market competition when determining the profit-maximizing quantity. In the case of monopolistically competitive firms, marginal analysis is like that of monopolies. These firms have some control over price due to product differentiation, but face competition from similar products. The profit-maximizing quantity occurs where MR equals MC. Overall, marginal analysis helps managers of these types of firms make informed decisions about the quantity of output to produce to maximize profits.

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