Question

At what MR does a monopolist maximize its revenue? How elastic is their demand at that MR?

Answer 1

The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC . At this point the monopolist maximizes profit .

A monopoly is only able to maximize profit by producing a quantity of output that falls in the elastic range of the demand curve . Let us see this by and equation :

We know , MR = P ( 1 - 1/e)

Now at MR = MC , MC will be > 0 .

So , MR = MC > 0

or, P ( 1 - 1/e) > 0

or, ( 1 - 1/e) > 0 . [ This is because P is always positive ]

or, e> 1 . [ proven that elasticity is greater than 1 or elastic in nature ]