The following table shows the total revenue and total cost for a monopolist at various levels of output.

Refer to Table 11-2.At an output of 9 units,the price elasticity of demand _____.
A)is more than one.
B)is less than one.
C)is equal to one.
D)cannot be determined without more data.

Question

The following table shows the total revenue and total cost for a monopolist at various levels of output.

Refer to Table 11-2.At an output of 9 units,the price elasticity of demand _____.
A)is more than one. 
B)is less than one. 
C)is equal to one. 
D)cannot be determined without more data.

Quizplus · Accepted Answer

At an output of 9 units, the monopolist's marginal revenue is $20 and marginal cost is $15. To maximize profits, the monopolist will produce at the output level where marginal revenue equals marginal cost (i.e. MR = MC). At an output of 9 units, the monopolist is producing where MR = MC, so the price elasticity of demand is equal to one. Since the monopolist has market power, it will set a price that is higher than the marginal cost of production. Therefore, the price elasticity of demand is less than one, meaning that a one percent increase in price will result in less than a one percent decrease in quantity demanded.

The Following Table Shows the Total Revenue and Total Cost