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5. Problems and Applications Q5 Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic, total revenue would increase when a monopolist result, total cost would quantity at which the demand curve is inelastic. its price. As a produce a . Therefore, a monopolist will Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR). 10 Demand Inelastic Demand 4 Max TR Marginal Revenue -3 -4 -5 0 1 2 3 4 5 6 7 8 9 10 Quantity

 
If demand is inelastic, total revenue would increase when a monopolist result, total cost would quantity at which the demand curve is inelastic. its price. As a produce a . Therefore, a monopolist will produce a quantity at which the demand curve is inelastic.
 
Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR). 
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The following diagram shows the inelastic part of the demand Price Inelastic part Demand Quantity 1R The inelastic part of demand curve indicates that a fall in price wil lower total revenue. This is because the quantity demanded doesnt change much. A fal in price will lower the revenue Th marginal reeauwes s esc n ic If demand is inelastic total revenue would increase when a monopolist raises its price. As a result, total cost would decrease, causing profit to increase. Therefore, a monopolist will never produce a quantity at which the demand curve is inelastic.

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