Explain why a momopolist would never produce in the inelastic range of the demand curve

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Expert Solution

A monopolist will neve be in equilibrium at a point on demand curve (AR curve) where the demand is inelastic (e<1). That is , when When the elasticity of demand or average revenue is less than 1 , marginal revenue will be negative and total revenue will be falling . Hence, a sensible monopolist will never produce at that portion of demand curve where elasticity of demand is less than 1( lower portion of demand curve ).

This is shown in the following diagram-

it is very clear from the above TR , MR and AR (demand curve) that, at the inelastic(lower) portion of demand curve TC will be falling and MR will be negative. Hence, no monopolist will produce at that portion of demand curve where elasticity of demand is less than one.

Rahul Sunny answered 1 year ago

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