A profit maximizing monopolist's price is $15 per unit

Marketing Jan 14, 2021

A profit maximizing monopolist's price is $15 per unit. At this point (absolute) value of the price elasticity (n) is 2. calculate his marginal cost.

Expert Solution

Given:

Our objective here is to calculate the marginal cost of the profit-maximizing monopolist. The formula for the Lerner index as a function of the price elasticity of demand is shown below:

Then, we input the absolute value of the price elasticity given in the problem, , to the equation.

Now, we plug in the values, and , into the formula for the Lerner index as a function of the price and the marginal cost.

The marginal cost of the profit-maximizing monopolist is $7.5.

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