Can any one help me show why a profit – maximizing monopolist will never operate in the price-inelastic region of its demand curve?
A monopolist will produce where MR = MC; since MC is always positive, the monopolist will hence never produce where MR is negative. Inelastic demand has negative MR. Hence, the monopolist will never produce where demand is inelastic.
(from HERE). The graph explains it pretty well.
MR = Marginal Revenue
MC = Marginal Cost
Thanks a million. Could you also tell me exactly what section of the business cycle our economy is in right no. I’m thinking we’re out of the trough and moving up the expansion ladder (although expansion hardly seems to fit).
And how come inelastic demand has negative MR?
In this case inelastic demand will have negative MR by definition. Work through it yourself; ask yourself what inelastic demand is, and what would happen if the monopoly produced at a point where MR is negative…
Well, it should be pretty obvious why you would not produce where the MR is negative. You wouldn’t want to lose money on any marginal output. But if you work backwards from there, logic should tell you why inelastic demand implies negative MR.
If we knew that we’d be multi-millionaires not wasting our time doing your homework. Maybe the homework crack is way off base, but real
…ly, no-one knows where we are in the “economic cycle”.
It’s actually not my homeowrk. As a meager undergrad trying to tutor a non-traditional in a master’s level econ course, I was trying to get some feedback to help explain the monopolistic demand curve and the phases of the business cycle.