Question

A monopolist has four distinct groups of customers. Group A has an elasticity of demand of​ 0.2, B has an elasticity of demand of​ 0.8, C has an elasticity of demand of​ 1.0, and D has an elasticity of demand of 2.0. The group paying the highest price for the product will be

Answer 1

Answer:  Group A

Explanation:

Price Elasticity of demand refers to the sensitivity of quantity demanded given a change in price. In other words, how much will quantity demanded change if price changes. Higher elastcities mean that when prices change, their quantity demanded changes more. For instance, an elasticity of demand of 2 means that when prices rise by 2%, demand will decrease by 4%.

The group that will be paying the most therefore will have to be the group that is least sensitive to paying that high price. That would be Group A. As they are not very sensitive to price changes with an elasticity of 0.2, the Monopoly can increase their price to a higher point than others knowing that they won't demand less goods.