The manager of a local monopoly estimates that the elasticity of demand for its product is...

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The manager of a local monopoly estimates that the elasticity of demand for its product is...

The manager of a local monopoly estimates that the elasticity of demand for its product is constant and equal to -3. The firm’s marginal cost is constant at $30 per unit.

a. Express the firm’s marginal revenue as a function of its price.
MR = ________ × P

b. Determine the profit-maximizing price.

business economics

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Answer 1

Answer #1

MR = P x (1 - 1/e)

e = 3

MR = P x (1 - 1/3)

MR = 2P/3

b)

Profit is maximised where MR = MC

2P/3 = 30

P = 45

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Answer 2

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