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A monopoly produces X at a marginal cost of $10 per unit and charges a price of $20 per unit. Determine the elasticity of demand at the profit-maximizing price of $20.

Respuesta :

ignaciomsarmiento

Answer:

-2

Explanation:

To solve this question we can use Lerner's equation or Lerner's index which gives the relationship between elasticity of demand and profit maximizing cost and marginal cost:

[tex]Lerner's\, Index=\frac{P-Mg\,Cost}{P}=\frac{1}{|\eta_d|}[/tex]

Replacing [tex]\frac{20-10}{20}=\frac{10}{20}=\frac{1}{2}[/tex]

Then we get that the elasticity of demand is [tex]\eta_d=-2[/tex]