The profit-maximizing quantity of a monopolist facing a downward-sloping demand curve must be produced at a point where the demand is elastic (meaning the demand elasticity with respect to price e< -1)

Economics Dec 12, 2020

The profit-maximizing quantity of a monopolist facing a downward-sloping demand curve must be produced at a point where the demand is elastic (meaning the demand elasticity with respect to price e< -1). True or false? Why?

Expert Solution

Answer

True.

the firm maximizes profit at MR=MC where MC is positive means the MR is positive

Elasticity, if MR=0 e=-1 and MR>0 then e<-1 so the firm should produce in the elastic demand area of the demand curve to maximize profit.

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