Question

A profit-maximizing monopolist will never operate in the portion of the demand curve with price elasticity...

A profit-maximizing monopolist will never operate in the portion of the demand curve with price elasticity equal to

a.

-2.5
b.

-1.5
c.

-1.25
d.

-.5
e.

Not enough information to be determined
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Answer #1

The correct option is d.

a) The whole aim of monopolist is to maximise profits for which he produces only those goods which have elastic demand. -2.5 value of PED being more than one means that price elasticity of demand here is elastic. So monopolist will operate here.

b) -1.5 coefficient of PED means that PED is elastic which will help monopolist to maximise profits.

c) Coefficient of PED being more than 1 means that it is elastic. So this will help monopolist to earn profits and he will operate in this range of demand curve.

d) Monopolist will never operate in the portion of the demand curve which is inelastic. Since -.5 coefficient of PED is less than 1, it means that the price elasticity is inelastic. So monopolist will never operate here.

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