00:01
So we've got two questions here.
00:02
The first is about elasticity.
00:03
Elasticity is the percent change in quantity over the percent change in price.
00:07
It's a measure of responsiveness.
00:10
When the price goes up or down, how much do people change their behavior and how much terms of what they buy or sell? so the price goes from 20 to 19, which is about a minus 5 percent change, right? the quantity goes from 9 to 10, which is about a plus 10 % change, roughly speaking.
00:36
So if we look at the elasticity, the elasticity is 10 over minus 5 equals minus 2, which would apply elastic, because elastic refers to any elasticity that are greater than one in absolute value, where the responsiveness of quantity is greater than the price.
00:55
Change.
00:57
So that's a.
00:58
In terms of b, we're asking about a monopolist.
01:02
Let's sketch a monopolist.
01:03
The monopolist sets, we have marginal cost, we have a demand curve, and the monopolist has this funky marginal revenue curve, and they set marginal revenue equal to marginal cost to make a profit, right? marginal revenue reflects that quantity up, sales up, but quantity, up, price down, right? the monopolist has got two effects going on.
01:30
When the monopolist produces more, it sells more units, which is good for the monopolist, but when it produces more, it drives the market price down because it's expanding the quantity in the marketplace and moving down the demand curve, right? so let's see which of these is false...