If a monopolist charges the same price for all of its output

Reference no: EM13834311

If a monopolist charges the same price for all of its output (i.e., it does not price discriminate), total revenue for the Örm will be TR = P(Q)Q: Show that:

(a) Total revenue is maximised when prices and quantities are set so that demand elasticity is -1. [2 marks]

(b) Explain why a monopolist would never produce at an outut level at which demand elasticity is -1 (part I). Or why a monopolist will always produce an output lower than that which would maximize its total revenue? (part II). (Hint: What is the objective of a monopo- list?) [1 mark]

Reference no: EM13834311

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