Answer Happy

Question One The expression p" - c'(x(p")) where p" and x" (p) are the monopolist's price and m p" output level, respectively, is known as the price-cost margin. It measures the distortion of the monopolist's price above its marginal cost as a proportion of its price. (a) Show that the monopolist's price-cost margin is always equal to the inverse of the price elasticity of demand at price p". (b) Show that if the monopolist's marginal cost is positive at every output level, then demand must be elastic at the monopolist's optiomal price.