Economics Q88

0. National Refinery of Pakistan is a monopoly enjoying very high barriers to entry. Its marginal cost is PKR 5,000 and its average cost is PKR 8,000. A recent market study has determined the price elasticity of demand to be 1.25. The company will most likely set its price at:

Answer
Comment
Array

Option : C
Explanation : Profits are maximized when MR = MC. For a monopoly:
MR = P [1 − (1 / Price Elasticity)]
5000 = P [1 − (1 / 1.25)]
P = 25000.

Forgot your password?

I agree with the Terms.