A firm in the market for designer jeans has some degree of monopoly power. The demand curve it faces has a price elasticity of demand of negative 3-3 , while the price elasticity demand of the market is negative 2.5-2.5. Moreover, the firm has a constant marginal cost of $65.0065.00. Using the rule of thumb for pricing, calculate the firm's profit-maximizing price. The profit-maximizing price is $nothing. (Round your answer to the nearest penny.)

Question

Jimmy Mcneil

Business

6 March, 03:56

A firm in the market for designer jeans has some degree of monopoly power. The demand curve it faces has a price elasticity of demand of negative 3-3 , while the price elasticity demand of the market is negative 2.5-2.5. Moreover, the firm has a constant marginal cost of $65.0065.00. Using the rule of thumb for pricing, calculate the firm's profit-maximizing price. The profit-maximizing price is $nothing. (Round your answer to the nearest penny.)

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Kendall Hatfield · Answer 1

Considering a marginal cost of $50, the firm's profit maximizing price is $75

Explanation:

A rule of thumb used to determine if the monthly rent earned from a piece of investment property will exceed that property's monthly mortgage payment.

Using rule of thumb pricing the profit maximising price of monopoly firm is =

P = MC/1 + (1/Ed)

Ed is easticity of demand for a firm, not the market. So, Ed = - 3.

P = $50/1 + (1 / (-3)) = $50 / (1-1/3) = 50 / (2/3) = $75