3. Suppose you are a manufacturer of milk and it produces 900 liters and sells it for $ 15 Lt and due to social development policies, the government decides that the price of the good should be lowered by one peso, therefore it should be sold at $ 14 per liter, with which people will have more access to buy it and will influence an increase in the quantity demanded, now having to produce 1,300 liters of the good. a. Determine the elasticity of demand. b. Determine the degree of Lerner's monopoly power.

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3. Suppose you are a manufacturer of milk and it produces 900 liters and sells it for $ 15 Lt and due to social development policies, the government decides that the price of the good should be lowered by one peso, therefore it should be sold at $ 14 per liter, with which people will have more access to buy it and will influence an increase in the quantity demanded, now having to produce 1,300 liters of the good.


a. Determine the elasticity of demand.
b. Determine the degree of Lerner's monopoly power.

Expert Solution
Step 1

By analyzing the situation, given information is:

  • Initial price: $15 Lt
  • Final Price: $14 Lt
  • Initial quantity: 900 litres
  • Final quantity: 1300 litres
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