Question

At a price and quantity of 70 and 60 respectively ,is the monopolistic firm in a long run or short run equilibrium

Answer 1

Assuming at a price of 70, Q=2800 and at a price of 60, Q=3000

% change in Q will be

$=\frac{(3000-2800)}{\frac{3000+2800}{2}}\times100$

$=\frac{200}{2900}\times100$

$=6.9$

% change in price

$=\frac{60-70}{\frac{60+70}{2}}×100$

$=\frac{-10}{65}×100$

$=-15.4$

Price elasticity of demand

$\frac{6.9}{15.4}$

$=0.45.$

At 70 the firm is running in the short run while at 60 the firm is running in the long run