Question 4Think a price making firm (monopolist) with a downward-sloping demand curve is one with a price elasticityof demand equal to-1. This is illustrated in the following diagram.P=AR20Expenditure stays thesame as price changesTRAR = =Qd (TR)dQSlope = b/Q40100Diagram 5 Unit elastic demand (Pe=-1)MR =As price and quantity change by the same proportion, total revenue is the same at each price (the TR curve ishorizontal). This gives the following TR, AR and MR equations:TR=bb-D (AR)Q= 0QAs TR is constant at all outputs, so MR must equal zero. In diagram 5, what is the value of b in equationTR=b?

Price elasticity of demand is a measure of how sensitive the quantity demanded of a good or service…

Think a price making firm (monopolist) with a downward-sloping demand curve is one with a price elasticity of demand equal to-1. This is illustrated in the following diagram. P=AR 20 X Expenditure stays the same as price changes

Think a price making firm (monopolist) with a downward-sloping demand curve is one with a price elasticity of demand equal to-1. This is illustrated in the following diagram. P=AR 20 X Expenditure stays the same as price changes

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.4P: Suppose the market for Hula Hoops is monopolized by a single firm. a. Draw the initial equilibrium...

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