Question:

For a profit maximising monopolist, the ratio of the profit margin to price (also known as the Lerner Index or the relative mark-up) has a relationship with the price-elasticity of demand at the profit maximising price. Then, which of the following statements is CORRECT?

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Updated On: Oct 1, 2024
  • The larger the elasticity of demand at the profit maximising price, the greater is the relative mark-up
  • The power to sustain a price higher than the marginal cost depends only on the profit maximising price
  • At the profit maximising price, given costs are greater than zero, the price elasticity of demand is strictly larger than unity
  • At the revenue maximising price, the price elasticity of demand is greater than unity
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The Correct Option is C

Solution and Explanation

The correct answer is (C): At the profit maximising price, given costs are greater than zero, the price elasticity of demand is strictly larger than unity
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