The more elastic the demand curve,a monopoly
A) will have a larger Lerner Index.
B) will face a lower marginal cost.
C) will earn more profit.
D) will lose more sales as it raises its price.

Question

Quizplus · Accepted Answer

When the demand for a monopoly's product is more elastic, it means that a small increase in price will lead to a large decrease in quantity demanded. Therefore, the monopoly will lose more sales as it raises its price, which will lead to a decrease in its revenue and profit. Therefore, option D is the correct choice. The other choices are not correct because a larger Lerner index means a higher markup over marginal cost, a lower marginal cost means the monopoly can produce at a lower cost, and a monopoly earning more profit is not necessarily related to the elasticity of demand.

The More Elastic the Demand Curve,a Monopoly