25. When EP = -2, the optimal markup on price is: a. 100% b. 67% c....

Question

Question

25. When E_P = -2, the optimal markup on price is:

business economics

Answer 1

Answer #1

MR=P*(1+(1/Ep))

Optimal condition is achieved when MR=MC

MC=P*(1+(1/Ep))

Price=MC(1+Markup)

1=(1+Markup)*(1+(1/Ep))

(1+(1/Ep))^-1=(1+Markup)

(1+(1/Ep))^-1-1=Optimal Markup

(1+(1/-2))^-1-1=Optimal Markup

Optimal Markup =1=100%

Option A is correct

Answer 2

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