A firm in the market for designer jeans has some degree of monopoly power

Economics Oct 03, 2020

A firm in the market for designer jeans has some degree of monopoly power. The demand curve it laws has a OCEI elasticity of demand of - 4, while the price elasticity demand of the market is -325. Moreover, the firm has a constant marginal cost of $65.00. Using the rule of thumb for pricing, calculate the firm, profit-maximizing price. The profit maximizing price is $

Expert Solution

Rule of thumb pricing (P) = MC/1+(1/Ed)

here,

MC (marginal cost)= 65

Ed (elasticity of demand)= -4

Put the values in the formula;

= 65/ (1+ (1/ -4))

= $ 86.67

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