Question

If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand?a. -1.5.b. -2.0.c. -2.5.d. -3.0.

Answer 1

a. -1.5

Step-by-step explanation:

The computation of the price elasticity of demand is shown below:

As we know that

Price elasticity of demand = E ÷ 1 + E × MC

E ÷ 1 + E × (3)

3 + 3E = E

3E - E = -3

2E = -3

E= -3/2

E = -1.5

Hence, the price elasticity of demand is -1.5

Therefore the correct option is a.

We simply applied the above formula so that the correct value could come

And, the same is to be considered