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We write the percentage markup of price over marginal cost as StartFraction Upper P minus MC Over Upper P EndFractionPMCP.

We write the percentage markup of price over marginal cost as

StartFraction Upper P minus MC Over Upper P EndFractionP−MCP.

For a​ profit-maximizing monopolist, how does this markup depend on the elasticity of​ demand? Why can this markup be viewed as a measure of monopoly​ power?

Market power is the ability to charge a price


1.    equal to

2.    2. Below

3.    3. above

 

 

marginal cost. For the​ profit-maximizing monopolist,

A.

StartFraction Upper P minus MC Over Upper P EndFraction equals negative Upper E Subscript Upper DP−MCP= −ED

will​ hold, implying that as the price elasticity of demand​ increases, market power decreases.

B.

StartFraction Upper P minus MC Over Upper P EndFraction equals negative StartFraction 1 Over Upper E Subscript Upper D EndFractionP−MCP=−1ED

will​ hold, implying that as the price elasticity of demand​ decreases, market power decreases.

C.

StartFraction Upper P minus MC Over Upper P EndFraction equals negative Upper E Subscript Upper DP−MCP= −ED

will​ hold, implying that as the price elasticity of demand​ decreases, market power decreases.

D.

StartFraction Upper P minus MC Over Upper P EndFraction equals negative StartFraction 1 Over Upper E Subscript Upper D EndFractionP−MCP=−1ED

will​ hold, implying that as the price elasticity of demand​ increases, market power decreases.

Top Answer

Markup pricing is a rule of thumb for charging prices over marginal cost, according to this concept... View the full answer

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