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A monopolist has set her level of output to maximize profit
A monopolist has set her level of output to maximize profit. The firm's marginal revenue is
$20, and the price elasticity of demand is -3.0. Which of the following prices or price ranges
describe the firm's profit maximizing price:
a. $0-9.
b. $10-19.
c. $20.
d. $21+.
e. This problem cannot be answered without knowing the marginal cost.
Expert Solution
Computation of Firm's Profit Maximizing Price:
Price = Marginal Revenue * [Elasticity / (1 + Elasticity)]
= $20 * [- 3 / (1 - 3)]
= $20 * (-3 / -2)
= $20 * 1.5
= $30
So, Firm's Profit Maximizing Price is $30. The correct option should be D "$21+".
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