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31 July, 09:32

Suppose a profit-maximizing monopolist is producing 12001200 units of output and is charging a price of $60.0060.00 per unit. If the elasticity of demand for the product is negative 2.00-2.00 , find the marginal cost of the last unit produced.

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  1. 31 July, 09:53
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    Marginal Cost = $30

    Explanation:

    Given that

    Price = $60

    Elasticity of demand = - 2

    Recall that

    MC = P (1 + 1/Ed)

    From monopolist pricing rule as a function of elasticity of demand.

    Where MC = marginal cost

    Ed = elasticity of demand = - 2

    Thus

    MC = 60 (1 + 1/-2)

    = 60 (1 + [-0.5])

    = 60 (1 - 0.5)

    = 60 (0.5)

    = 30

    MC = $30
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