12. Firm Z is a monopolist that sells its output at price $40/unit. If Firm Z's...

Question

Question

12. Firm Z is a monopolist that sells its output at price $40/unit. If Firm Zs marginal cost of production is $32/unit, use

business economics

Answer 1

Answer #1

Mark-up formula:

(P - MC) / P = -(1/Ed)

Where MC is marginal cost.

P is price level

Ed is price elasticity.

(12) (P - MC) / P = -(1/Ed)

(40 - 32) / 40 = -(1 /Ed)

(8 / 40) = -(1 / Ed)

Ed = -(40 / 8)

Ed = -5

Price elasticity of demand faced by firm is -5.

Answer 2

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