Assume that the price elasticity of demand for a good is -1.2, and the firm's marginal...
Assume that the price elasticity of demand for a good is -1.2, and the firm's marginal cost is $2. What price should the firm charge to maximize profits?
a. $24
b. $20
c. $18
d. $16
e. $12
Homework Answers
Answer
the formula is
P=MC/(1+(1/e))
P=price
MC=marginal cost
e=elastcity
P=2/(1+(1/(-1.2)))
=12
the monopolist charge price of $12
Option e
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