Question

Which of the following statements are FALSE regarding the price elasticity of residual demand?(not only 1 answer)

A. It is equal to the price elasticity of market demand times the number of firms.

B.It is less elastic for homogeneous goods than for heterogeneous goods.

C.The monopoly markup decreases as the price elasticity of residual demand becomes more negative.

D.It is equal to negative infinity in the perfect competition model.

Answer 1

A. The residual demand curve is a lot more flatter than the market demand curve. SO the elasticity is much higher than market elasticity. So this statement is FALSE

B. when consumers see that the product is different for a firm, (heterogenous), its residual demand curve becomes less elastic. So this statement is FALSE.

C. Firms, where consumers are responsive or demand, is more elastic, a high markup cannot be charged as that would lead to a drastic fall in sales. So this statement is TRUE.

D. The residual demand curve is perfectly elastic when the market is completely competitive. So this statement is TRUE.

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