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

If demand is inelastic and a monopolist raises its price, quantity would fall by a (smaller, larger) percentage than the rise in price, causing profit to (increase, decrease). Therefore, a monopolist will (always, never, sometimes) produce a quantity at which the demand curve is elastic.

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).

Transcribed Image Text:

Price 10 9 8 7 6 5 4 N 1 0 -1 -2 w -3 -4 Q Demand 0 1 2 3 4 Marginal Revenue 5 6 7 8 9 Quantity 10 8 Inelastic Demand + Max TR (?) Price 10 9 8 7 6 5 4 N 1 0 -1 -2 w -3 -4 Q Demand 0 1 2 3 4 Marginal Revenue 5 6 7 8 9 Quantity 10 8 Inelastic Demand + Max TR (?)

Answer rating: 100% (QA)

Answer In the presence of inelastic demand a monopolists price hike would result in more revenue and ... View the full answer