3. The price of a good to be sold by a Monopoly is $0.50. The market has an elas

Question

3. The price of a good to be sold by a Monopoly is $0.50. The market has an elasticity of demand (n) of 5.

a. What is the mark-up and what is the Marginal cost?
b. What would this look like for a perfectly competitive market? What would the elasticity of demand (n) be for the perfectly competitive market?

Explanation / Answer

P = $0.50 E, elasticity of demand = 5 P = MC price = marginal cost, in a monopoly, price fixing, profit maximisation condition. => MC = $0.50 mark-up price = E/(1 + E) * MC = 5/ (1 + 5) * 0.5 = $0.4167 b) In PC, P = MR = MC => MC = $0.50 there is no profit maximisation and monopoly in perfect competition, no markup price. Perfect Competition is perfectly elastic. { refer to this diag :- http://www.ecoteacher.asn.au/S&d2/perfecte.jpg } since price is constant.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.