It is a conventional practice among apparel retailers to set the retail price of clothing at twice the cost paid to the manufacturer. For example, if the retailer pays $7 for a pair of jeans, the jeans will retail for $14. What must the price elasticity of demand be for this practice to be profit maximizing?
What will be an ideal response?
Since price is twice marginal cost, the Lerner Index is 1/2. This practice is profit maximizing if the price elasticity of demand is -2.
Economics
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Although monopoly and perfect competition result in different market outcomes, the fact that firms in both market structures work to maximize their profits ensures that resources are allocated efficiently in both situations
Indicate whether the statement is true or false
Economics
Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist.
When this monopolist maximizes its profit, consumer surplus equals the area:
A. ABJ. B. ACKJ. C. AELJ. D. ACN.
Economics