Question

g Firm X is a monopolist with marginal cost of $5/unit. When maximizing profit, Firm X charges a price of $24/unit. What elasticity of demand is Firm X facing at its current level of output

Answer 1

Answer:

Firm X is facing low elasticity of demand at its current level of output.

Explanation:

This is why Firm X is able to set such a high price of $24/unit when its marginal cost is $5/unit.  Usually, a monopolist does not want to set prices and outputs in the inelastic range of the demand curve.  It is always interested in setting profit-maximizing prices and outputs.  Firm X should be wary of setting too high prices because consumers can decide to lower their demand.