Question

You have been hired to advise a monopolist on its pricing and output policy. An independent...

You have been hired to advise a monopolist on its pricing and output policy. An independent research firm has estimated its elasticity of demand to be –0.5. Would you recommend that the monopolist change its output? If so, in what direction? Explain your answer and illustrate with an appropriate graph.

Homework Answers

Answer #1

When price elasticity is less than unit elastic means there is a scope of monopoly power over market price because as it is known perfect competition exists at perfect price elasticity where all firms take the price as given so to practice some influence over price, firms require having inelastic demand. If it is given that price elasticity of demand is 0.5 implies for 100% change in price, quantity demanded changes by 50%. A monopolist would raise the price accordingly even if it requires to less a lower than efficient output practicing its monopoly power.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have been hired as a health policy analyst. Your assignment is to devise a plan...
You have been hired as a health policy analyst. Your assignment is to devise a plan to decrease the wait time for people who need an organ transplant. What types of policies would you recommend? What types of policies would you advise against? What are the costs and benefits of each?
Question: Suppose you have been hired by a research firm trying to understand the market for...
Question: Suppose you have been hired by a research firm trying to understand the market for Widgets (a hypothetical product). Your analysis of the data indicates that the Demand curve for Widgets is estimated to be linear and given by equation Qd = 100 – P and the Supply curve for Widgets appears to be linear as well and is estimated as Qs = 3P – 20. Graphically draw these two curves, labeling all relevant points (such as intercepts for...
1. You have been hired by a new startup. They have been on the market for...
1. You have been hired by a new startup. They have been on the market for just a small time and in that time they have offered their product at two prices. They introduced their product at $3.50 and sold 40 units in a month. Then they reduced the price to $3.00 and sold 52 units in a month. The company has the following costs associated with production: 0.05Q² + 0.90Q. Fixed costs are $20 in rent. The government also...
You have been employed as an Economic Consultant by MBA company limited. explain to the board...
You have been employed as an Economic Consultant by MBA company limited. explain to the board how price elasticity of demand for the company's product affects: 1 Company's pricing policy and hence revenue levels 2. Government's taxation policy 3 Government's devaluation policy
Week 1 Project Instructions Supply and Demand Concepts You have been hired by a new firm...
Week 1 Project Instructions Supply and Demand Concepts You have been hired by a new firm selling electronic dog feeders. Your client has asked you to gather some data on the supply and demand for the feeder, which is given below, and address several questions regarding the supply and demand for these feeders. Price per Feeder Quantity Demanded Quantity Supplied $300 500 1800 270 600 1700 240 700 1600 210 800 1500 180 1000 1400 1150 1100 1300 120 1200...
1) Suppose that a single price monopolist faces a linear, downward sloping demand curve and a...
1) Suppose that a single price monopolist faces a linear, downward sloping demand curve and a total cost curve that includes the following data points: Price Quantity Total Revenue 8 0 7 1 6 2 5 3 4 4 3 5 2 6 1 7 0 8 Quantity Total Cost 0 2 1 4 2 6 3 8 4 10 5 12 6 14 7 16 8 18 a. What is the profit maximizing condition for a monopolist? In order...
Assume a monopolist can produce at constant average and marginal costs of AC=MC=5, and sells its...
Assume a monopolist can produce at constant average and marginal costs of AC=MC=5, and sells its goods in two different markets separated by some distance. The demand in the first market is given by Q1= 55 - P1 and the demand in the second market is given by Q2 = 70 - 2P (a) If the monopolist can maintain the separation between the two markets, what level of output should be produced in each market, and what’s the price charged...
You have been hired as a financial consultant by Independent Investment Partners, with offices in all...
You have been hired as a financial consultant by Independent Investment Partners, with offices in all 50 states. Your first assignment is to advice a client, Jane Smith, who is considering whether to accept an early retirement package offered by her firm. Ms. Smith currently earns a $55,000 and she is 40 years old. She is good health and expects that she could work for another 30 years before retirement. If she rejects the early retirement offer and continues to...
2. You have been hired to do some consulting for Fishy Joe’s, a profit-maximizing monopolistic competitor...
2. You have been hired to do some consulting for Fishy Joe’s, a profit-maximizing monopolistic competitor selling “popplers”. You have estimated the firm’s demand, marginal revenue, and marginal cost curves to be, respectively, P = 100 − 2Q, MR = 100 − 4Q, and MC = 20 + Q, where quantity Q is measured in servings and prices are measured in dollars per serving. Currently, the firm is producing where • Price = $50/serving • Average Total Cost = $38/serving...
question: You have been hired at an advertising firm. Your boss would like to hear a...
question: You have been hired at an advertising firm. Your boss would like to hear a pitch from you that is “guaranteed to have a sleeper effect.” Create an ad for any product. Be sure to explain how you know this ad will create a sleeper effect in the viewer. (Please do this is example so i am able to better understand this concept)