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A monopoly sets a price of $50 per unit for an item that has a marginal cost of $10. Assuming profit maximization by the monopoly and utility maximization by the agents, the price elasticity of demand measured at the quantity consumed by the agents is equal to:

Respuesta :

Answer:

-1.25

Explanation:

Data provided in the question:

Price of a item per unit = $50

Marginal cost = $10

Now,

Price = ( 1 + Mark up) × Marginal cost

$50 = ( 1 + Mark up) × 10

$5 = 1 + Mark up

or

Mark up = 4

Also,

Mark up = [tex]\frac{1}{[\textup{-(elasticity of demand)} - 1]}[/tex]

or

4 =  [tex]\frac{1}{[\textup{-(elasticity of demand)} - 1]}[/tex]

-(elasticity of demand) - 1 = 0.25

or

Elasticity of demand = -1.25

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