4. (a) Profit-maximizing price must equal p = S MC, where e is the price elasticity of demand. What are the requirements for this condition to hold? In other words, explain both the necessary and sufficient conditions and the requirement related to e. (b) Show that for an elastic demand, by lowering the price profits may go up or down; for an inelastic demand loweing the price must lower the profits. What happens when the elasticity is 1 and price is lowered or raised?

4. (a) Profit-maximizing price must equal p = S MC, where e is the price elasticity of demand. What are the requirements for this condition to hold? In other words, explain both the necessary and sufficient conditions and the requirement related to e. (b) Show that for an elastic demand, by lowering the price profits may go up or down; for an inelastic demand loweing the price must lower the profits. What happens when the elasticity is 1 and price is lowered or raised?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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