RE: Chapter 10 question - Monopoly

Humphrey, Carol ( (no email) )
Wed, 3 Mar 1999 08:02:56 -0500

I agree that this looks like a typo. At the bottom of p. 346 it says, "A 1%
increase in quantity requires a 1/abs(n)% decrease in price, where n is the
price elasticity of demand." This makes sense based on the fact that we are
dealing with a downward sloping demand curve. Doing the math, if abs(n) is
greater than 1 it would follow that a 1% increase in quantity would lead to
less than a 1% decrease in price.

> -----Original Message-----
> From: collision@email.com [SMTP:collision@email.com]
> Sent: Tuesday, March 02, 1999 9:55 PM
> To: CAS Part 5A
> Subject: Chapter 10 question - Monopoly
>
> Chapter 10:
>
> In the last sentence on page 347 (with respect to Elasticity and Marginal
> Revenue for Monoplies)
>
> it says "For ABS(NU) > 1, a 1% increase in quantity requires a less than 1
> % increase in price, so that total revenue increases."
>
> For a monopoly, an increase in quantity must lead to a DECREASE in price,
> in order to keep the downward sloping demand curve.
>
> IS THIS A TYPO?
> If so, what is the correct statement? Can I just change "increase" in
> front of price to "decrease?"
> If not, ??? Can anyone explain?
>
>
>
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