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Llanis Llanis
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2 years ago
In a recent court case, an expert witness defined a monopoly as a firm that can "raise price without reducing its total revenue." What does this imply about the elasticity of demand? Would this definition hold for a profit-maximizing monopoly? Explain.
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Microeconomics


Edition: 6th
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2 years ago
If the firm raises price, the quantity sold will decrease. If total revenue is not reduced by this, then marginal revenue is not positive. This implies demand either is price inelastic or has unitary elasticity. This would not hold for a profit-maximizing monopoly. A profit maximizer sets MR = MC. This definition implies that MR is zero or negative, and MC cannot be negative.
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