If the marginal cost of making a photocopy is 3 cents and the elasticity of demand is –2, the profit-maximizing price is:
a. |
5 cents |
|
b. |
8 cents |
|
c. |
6 cents |
|
d. |
3 cents |
|
e. |
7 cents |
Ans) Profit maximising price, P = MC [(e)/(e+1)] ; where e is elasticity
P = 3 [(-2)/(-2+1)] = 3× (-2/-1) = 3×2 = 6cents.
Option c.
If the marginal cost of making a photocopy is 3 cents and the elasticity of demand...
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