Question

A monopoly sells its good in the United States, where the elasticity of demand is -1.6 , and in Japan, where the elasticity of demand is -5.8 . Its marginal cost is $10. At what price does the monopoly sell its good in each country if resales are impossible? The price in the United States is $ (Round your answer to the nearest penny.)

Answer 1

A monopoly determines prices based on the elasticity of demand and its marginal cost. In the United States with an elasticity of -1.6, the price is set at $26.67, while in Japan with an elasticity of -5.8, the price is set at $12.08.

Step-by-step explanation:

The student has posed a question related to price determination by a monopoly in different markets with different elasticity of demand. The key information given is that the monopolist is selling in the United States with an elasticity of demand of -1.6 and in Japan with an elasticity of demand of -5.8, with a marginal cost of $10 for its product. To determine the price in each country, we use the formula for a monopolist's price: P = MC / (1 + (1/E)), where P is the price, MC is marginal cost, and E is the elasticity of demand.

For the United States, where elasticity of demand (E) is -1.6:

• P = $10 / (1 + 1/-1.6) = $10 / (1 - 0.625) = $10 / 0.375 = $26.67

For Japan, where elasticity of demand (E) is -5.8:

• P = $10 / (1 + 1/-5.8) = $10 / (1 - 0.1724) = $10 / 0.8276 = $12.08

Therefore, the monopoly will sell its product for approximately $26.67 in the United States and $12.08 in Japan, assuming no possibility for resale.