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.)

IIT JAM EN - 2022
IIT JAM EN

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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The Correct Option is A, C

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