Elasticity of demand is critical in determining the price which maximizes profits.
The monopoly pricing rule says to set (P-MC)/P=1/e, where e is the ABSOLUTE VALUE of the price elasticity of demand. (Remember, price elasticities are negative.)
Note that MC is the marginal cost at the quantity produced. If it's not constant, some calculation is required to figure out how much Q to make.
marginal revenue is negative where demand is inelastic
distinguish between price elasticity of demand and income elasticity of demand
its zero I'll do a bit of the explanation: Price Elasticity of Demand captures the shift in demand for rises in prices in percentage terms. Therefore if a commodity is such that no matter what price the producer charges the consumer has no alternative but to buy it, then for any price the demand for that commodity remains unaltered, maybe an example is a monopolist salt producer. Therefore the demand curve must be vertical, no matter what the price the quantity demanded is same, hence the price elasticity is zero. (dq/dp)(p/q) = 0, because (dq/dp) = 0
1)price elasticity of demand 2)income elasticity of demand 3)cross elasticity of demand
Unitary elasticity is when the price elasticity of demand is exactly equal to one.
marginal revenue is negative where demand is inelastic
i) "If the demand curve is vertical, elasticity is zero"Price Elasticity of Demand captures the shift in demand for rises in prices in percentage terms. Therefore if a commodity is such that no matter what price the producer charges the consumer has no alternative but to buy it, then for any price the demand for that commodity remains unaltered, maybe an example is a monopolist salt producer. Therefore the demand curve must be vertical, no matter what the price the quantity demanded is same, hence the price elasticity is zero.
distinguish between price elasticity of demand and income elasticity of demand
its zero I'll do a bit of the explanation: Price Elasticity of Demand captures the shift in demand for rises in prices in percentage terms. Therefore if a commodity is such that no matter what price the producer charges the consumer has no alternative but to buy it, then for any price the demand for that commodity remains unaltered, maybe an example is a monopolist salt producer. Therefore the demand curve must be vertical, no matter what the price the quantity demanded is same, hence the price elasticity is zero. (dq/dp)(p/q) = 0, because (dq/dp) = 0
1)price elasticity of demand 2)income elasticity of demand 3)cross elasticity of demand
Unitary elasticity is when the price elasticity of demand is exactly equal to one.
Cross price elasticity of demand measures the responsivenss of demand for a product to a change in the price of another good.
In economics , the cross elasticity of demand and cross price elasticity of demand measures the responsiveness of the quantity demand of a good to a change in the price of another good.
role of price elasticity of demand in managerial decisions
The price elasticity refers to the change in demand due to the change in price. The income elasticity of demand on the other hand refers to the change in demand due to the change in income.
A monopolistic competitor's demand curve is less elastic than apure competitor's which is less elastic than a pure monopolist's.
Price elasticity of demand is positively correlated with the existence of substitute goods.