Question #49404

Consider a monopolist whose total cost function is TC = 40 + 4Q + Q2 and whose marginal cost function is MC = 4 + 2Q. The demand function for the firms good is P = 160 - 0.5Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the firm uses a uniform pricing strategy, then the price elasticity of demand (ED) at the profit maximizing price is equal to:
0.5
1.0
2.6
4.5
5.2

Expert's answer

TC = 40 + 4Q + Q2, MC = 4 + 2Q, P = 160 - 0.5Q.

If the firm uses a uniform pricing strategy, then the price elasticity of demand (ED) at the profit maximizing price is equal to the slope of the demand curve P = 160 - 0.5Q, so Ed = 0.5.

That's why the right answer is a) 0.5.

If the firm uses a uniform pricing strategy, then the price elasticity of demand (ED) at the profit maximizing price is equal to the slope of the demand curve P = 160 - 0.5Q, so Ed = 0.5.

That's why the right answer is a) 0.5.

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