You write a software package to sell on the internet.Assume there is no marginal cost to...
You write a software package to sell on the internet.Assume there is no marginal cost to selling one additional unit.what rule do you follow in figuring the final price . will you set the price where a 1% increase in price results in a :
(a) MORE THAN 1% decrease in quantity demanded.
(b) 1% decrease in quantity demanded.
(c)less than 1% decrease in quantity demanded.
Homework Answers
Ans is B
when marginal cost=0 then in order to maximise profit MR=MC. Thus marginal revenue has to be 0.
we know elasticity=-1 when marginal revenue=0
and elasticity=-1 I.e. When 1% increase in price leads to 1% decrease in quantity demanded
in simple words % change in price= % change in quantity demanded
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