Question:
Let a monopolist demand curve be given by $Q = P^e$, where Q is output, P is price, e is the price elasticity of demand (e <-1), and Marginal Cost = Average Cost = $\alpha$. If $P^c$ and PM represent the price under perfect competition and monopoly, respectively, then which of the following is/are NOT correct?
($CS_M$ and $CS_C$ represent the consumer surplus under monopoly and perfect competition, respectively.)
Let a monopolist demand curve be given by $Q = P^e$, where Q is output, P is price, e is the price elasticity of demand (e <-1), and Marginal Cost = Average Cost = $\alpha$. If $P^c$ and PM represent the price under perfect competition and monopoly, respectively, then which of the following is/are NOT correct?
($CS_M$ and $CS_C$ represent the consumer surplus under monopoly and perfect competition, respectively.)
($CS_M$ and $CS_C$ represent the consumer surplus under monopoly and perfect competition, respectively.)
Updated On: Oct 1, 2024
- $P^c$ = $\alpha (\frac{e}{1+e})$
- $P^M$ = $\alpha(\frac{e}{1+e})$
- For e=2, $CS_M$ = $CS_C$.
- For e closer to -1, the ratio $CS_M$ / $CS_C$ increases.
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The Correct Option is A, C
Solution and Explanation
The correct option is (A): $P^c$ = $\alpha (\frac{e}{1+e})$ and (C): For e=2, $CS_M$ = $CS_C$.
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