Question

A firm in the market for designer jeans has some degree of monopoly power. The demand curve it faces has a price elasticity of demand of negative 3−3​, while the price elasticity demand of the market is negative 2.5−2.5. ​Moreover, the firm has a constant marginal cost of ​$65.0065.00. Using the rule of thumb for​ pricing, calculate the​ firm's profit-maximizing price. The​ profit-maximizing price is ​$nothing. ​(Round your answer to the nearest​ penny.)

Answer 1

Considering a marginal cost of $50, the firm's profit maximizing price is $75

Step-by-step explanation:

A rule of thumb used to determine if the monthly rent earned from a piece of investment property will exceed that property's monthly mortgage payment.

Using rule of thumb pricing the profit maximising price of monopoly firm is =

P = MC/1+(1/Ed)

Ed is easticity of demand for a firm, not the market. So, Ed = -3.

P = $50/1+ (1/(-3)) = $50/(1-1/3) = 50/(2/3 ) = $75