Answer to Question #94645 in Macroeconomics for Meghana Jayadevan

Question

Suppose the price of an inferior good,product A is currently 14 dollar and is produced at a marginal cost of 10.50 dollar per unit. The estimated price elasticity of demand for product A To be 2.5. The producer of product A should____ as the optimal price indicated by the Current elasticity is_____.
Given options; a) increase the price 15.50 b) increase the price 17.50 c) decrease the price 13 d)leave the price unchanged 14 dollar

Answer 1

The producer of product A should increase the price as the optimal price indicated by the Current elasticity is 17.5.

Р=10.5/(1+1/-2.5)=17.5