Question: 7 . Monopoly and Price Elasticity Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic, total revenue would

7 . Monopoly and Price Elasticity

Consider the relationship between monopoly pricing and the price elasticity of demand.

If demand is inelastic, total revenue would increase when a monopolistraises its price. As a result, total cost wouldincrease . Therefore, a monopolist willnever produce a quantity at which the demand curve is inelastic.

Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).

Inelastic DemandMax TR012345678910109876543210-1-2-3-4-5PriceQuantityDemandMarginal Revenue

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