Question

Consider the relationship between monopoly pricing and the price elasticity of demand. if demand is inelastic, total revenue would increase when a monopolistraises its price. as a result, total cost wouldincrease . therefore, a monopolist will produce a quantity at which the demand curve is inelastic.

Answer 1

Answer:

Explanation:

A monopolist is out for to profit-maximize price and in doing he will never set a price at which the (linear) demand curve is inelastic.

Consequently, the revenue would increase and the total costs would decrease at a lower quantity.

Hence, a monopoly firm would have higher revenue and lower costs, so that the profit will be higher.

So, the firm should keep on raising its price until profits are maximized. This happens on an elastic portion of the demand curve.

On the demand curve ,

When Marginal Revenue = Marginal Cost Profit is maximized at the output level where .

Marginal Cost is positive (MC>0), the profit-maximizing output proofs to be associated with the elastic portion of the demand curve.

Exploring the relationship between Total Revenue and Price.

As Price increases, Total Revenue increases WHEN demand is inelastic.

If Price decreases, Total Revenue increases, WHEN demand is elastic

Total Revenue is maximized when demand is unit-elastic.