Consider a monopolist operating on a market with a downward sloping demand curve. The monopolist has a constant marginal cost and no fixed cost. At the current level of production and at the current price level, the price elasticity of demand is equal to -0.8. Assume the monopolist wishes to maximise profits. a) Would we be able to say anything about whether the monopolist has chosen a price and quantity that maximise profits? Explain your answer by means of diagrams (maximum 150 words). b) What is the price elasticity of supply in this market?
Consider a monopolist operating on a market with a downward sloping demand curve. The monopolist has a constant marginal cost and no fixed cost. At the current level of production and at the current price level, the price elasticity of demand is equal to -0.8. Assume the monopolist wishes to maximise profits. a) Would we be able to say anything about whether the monopolist has chosen a price and quantity that maximise profits? Explain your answer by means of diagrams (maximum 150 words). b) What is the price elasticity of supply in this market?
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter24: Price-searcher Markets With High Entry Barriers
Section: Chapter Questions
Problem 15CQ
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![Consider a monopolist operating on a market with a downward sloping demand curve.
The monopolist has a constant marginal cost and no fixed cost. At the current level of
production and at the current price level, the price elasticity of demand is equal to -0.8.
Assume the monopolist wishes to maximise profits.
a) Would we be able to say anything about whether the monopolist has chosen a
price and quantity that maximise profits? Explain your answer by means of
diagrams (maximum 150 words).
b) What is the price elasticity of supply in this market?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd246de90-5d81-424a-b26a-b46c9f9d37d6%2Fa48b2b76-d0fc-45e5-aa64-f0cd62620fbc%2Ft7gnwxe_processed.png&w=3840&q=75)
Transcribed Image Text:Consider a monopolist operating on a market with a downward sloping demand curve.
The monopolist has a constant marginal cost and no fixed cost. At the current level of
production and at the current price level, the price elasticity of demand is equal to -0.8.
Assume the monopolist wishes to maximise profits.
a) Would we be able to say anything about whether the monopolist has chosen a
price and quantity that maximise profits? Explain your answer by means of
diagrams (maximum 150 words).
b) What is the price elasticity of supply in this market?
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