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A monopoly incurs a marginal cost of $12 for each unit produced. The price elasticity of...

A monopoly incurs a marginal cost of $12 for each unit produced. The price elasticity of demand equals -1.5. The monopoly’s profit maximizing price is

a. $20

b. $8.

c. $36.

d. $4.

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Answer #1

Profit maximizing price for the Monopoly

P = marginal cost * (ed)/(ed+1)

= 12*(-1.5)/(-0.5)

= 36

Select option C.

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