Question

The manager of a local monopoly eslimales that lhe elasticily of demand for its product is constanl and equal to -3. Thefmn’s marginal cost is conslam at $20 per unita. Express the firm‘s marginal revenue as a function of its price.b. Determine lhe prom-maximizing price.

Answer 1

a. MR = 2/3P

b. The prom-maximizing price is $30.

Step-by-step explanation:

a. MR = P(1 + 1/e)

= P(1 - 1/3)

= 2/3P

Therefore, Thefirm‘s marginal revenue as a function of its price is MR = 2/3P

b. monopoly firm maximizes profit when MR = MC

2/3P = 20

P = $30

Therefore, The prom-maximizing price is $30.