Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Suppose a firm has a constant marginal cost of $10
Suppose a firm has a constant marginal cost of $10. The current price of the product is $25, and at that price, it is estimated that the price elasticity of demand is -3.0.
a. Is the firm charging the optimal price for the product? Demonstrate how you know.
b. Should the price be changed? If so, how?
Expert Solution
Part A
MC=MR=P(1+1/n)
$10=P(1+1/-3)
$10=2/3P
P=$10*3/2=$15
The optimal price to be charged is $15, meaning with the price of $15, the firm is not charging optimal price.
Step-by-step explanation
Part B
Yes, the price should be changed to suit the profit maximisation price and the intended optimal price,hence the price should be changed by $25-$15=$10
It should be changed to $15 or be reduced by $10.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
