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?

  1. 👍
  2. 👎
  3. 👁
  1. 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

    1. 👍
    2. 👎

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