A monopolist firm faces a demand with constant elasticity of -2.0. It has a constant marginal cost of $20 per unit and sets a price to maximize profit. If marginal cost should increase by 25 percent, the price charged will rise by more than 25 percent.

A monopolist firm faces a demand with constant elasticity of -2.0. It has a constant marginal cost of $20 per unit and sets a price to maximize profit. If marginal cost should increase by 25 percent, the price charged will rise by more than 25 percent.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A monopolist firm faces a demand with constant elasticity of -2.0. It has a constant marginal cost of $20 per unit and
sets a price to maximize profit. If marginal cost should increase by 25 percent, the price charged will rise by more than
25 percent.
True
False

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