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Posted by on Monday, September 3, 2012 at 1:19am.

3. Suppose a firm has a constant marginal cost of $10. The current price of the product is $25, and at that price, it is estimated that the price elasticity of demand is -3.0.
a. Is the charging the optimal price for the product? Demonstrate how you know.
b. Should the price be changed? If so, how?

  • Economics - , Thursday, September 6, 2012 at 1:28pm

    a) it's not charging optimal price because the price exceed MC.

    b) it should reduce its price equal to MC in order to maximize profit.

    so, the price should be equal to $10

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