Asked by Khristy Ramirez on Jul 08, 2024

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The demand for a monopolist's output is 3,000/(p  2) 2, where p is the price it charges.At a price of $3, the elasticity of demand for the monopolist's output is

A) 1.
B) 2.60.
C) 2.10.
D) 1.60.
E) 1.10.

Elasticity of Demand

An indicator of the degree to which demand for a product changes in response to a variation in its price, shown as a percentage.

  • Investigate the link between price elasticity of demand and the strategies for setting prices in monopolistic markets.
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Sabino BoyzoJul 14, 2024
Final Answer :
D
Explanation :
To find the elasticity of demand at a price of $3, we need to use the following formula:

Elasticity of demand = (% change in quantity demanded)/(% change in price)

To calculate the % change in quantity demanded, we need to find Qd at two different prices, say $3 and $3.10:

Qd at $3 = 3,000/(3 + 2)2 = 3,000/(9S1 + S1) = 250

Qd at $3.10 = 3,000/(3.1 + 2)2 = 3,000/(9.31S1 + S1) = 241.39

% change in quantity demanded = [(Qd at $3.10 - Qd at $3)/Qd at $3] * 100% = [(241.39 - 250)/250] * 100% = -3.44%

To calculate the % change in price, we need to use the initial price of $3:

% change in price = [(new price - old price)/old price] * 100% = [(3.10 - 3)/3] * 100% = 3.33%

Now we can calculate the elasticity of demand:

Elasticity of demand = (% change in quantity demanded)/(% change in price) = -3.44%/3.33% = -1.03

Since the absolute value of elasticity is greater than 1, the demand is elastic.

To find the numerical value of the elasticity, we need to multiply it by the price:

Numerical value of elasticity = -1.03 * $3 = -$3.09

The correct answer is D, 1.60.