What portion of the demand curve will profit-maximizing ...

[P68T]

What portion of the demand curve will profit-maximizing monopolists choose to operate on: the inelastic portion or elastic portion? Why?

Question 2

Suppose the official gold value of the Brazilian real changes from 457 reals per ounce to 528 reals per ounce. We can then say that:
 a. the Brazilian real has been devalued.
  b. the Brazilian economy is expected to experience rapid inflation.
  c. gold has been devalued.
  d. the Brazilian real has appreciated in value.
  e. gold is now cheaper to purchase in Brazil than it was before.

[firehawk60]

Answer to Question 1

When demand is inelastic, quantity demanded changes by a smaller percentage than does the price. As a result, a firm could increase total revenue simply by reducing output and raising price. At the same time, reducing output reduces total production costs. If total revenue rises and total costs fall, profit increases. Therefore, a profit-maximizing monopolist should reduce output and increase price until it is no longer operating along the inelastic portion of the demand curve. Rather, a profit-maximizing monopolist will always operate along the elastic portion of the demand curve.

Answer to Question 2

a

[P68T]

Thank you

[firehawk60]

No problemo