Managerial Economics – A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of 2.5. Which price should it charge

Managerial Economics – A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of −2.5. Which price should it charge to optimize its profits?

In monopoly to maximize profit MR=MCRevenue= PQDifferentiating wrt Q to get MR (using product rule of differentiation)MR=dR/dQ=P+QdP/dQ=MCElasticity= PdQ/QdP=-2.5QdP/dQ=-P/2.5Putting in…

 
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