A monopoly sells its good in the United States, where the elasticity of demand is negative 1.6 , and in Japan, where the elasticity of demand is negative 5.6 . Its marginal cost is $7 . At what price does the monopoly sell its good in each country if resales are impossible?

a. The monopoly will sell its good in the United States at $18.67.

b. The monopoly will sell its good in Japan at $8.52.

Explanation:

For any firm, profit is maximized where marginal revenue (MR) is equal to marginal cost (MC), i.e. where;

MR = MC (1)

For a monopolist, relationship between MR, the price elasticity of demand, and the price that gives maximum profits is given as follows:

MR = P(1 + 1/E) (2)

Where P denotes price and E denotes elasticity of demand.

Since from equation (1) we have MR = MC, it also implies that from equation (2):

MC = P(1 + 1/E) (3)

Equation (3) will now be used to solve this question when it can price discriminate and also impossible to resell as follows:

a. Calculation of monopoly price in the United States

Given;

MC = $7

E = -1.6

Substituting the values into equation (3) and solve for P, we have:

$7 = P(1 + 1/(-1.6))

P = $7 / (1 - 0.625)

P = $7 / 0.375

P = $18.67

Therefore, the monopoly will sell its good in the United States at $18.67.

b. Calculation of monopoly price in the Japan

Given;

MC = $7

E = -5.6

Substituting the values into equation (3) and solve for P, we have:

$7 = P(1 + 1/(-5.6))

P = $7 / (1 - 0.178571428571429)

P = $7 / 0.821428571428571

P = $8.52

Therefore, the monopoly will sell its good in Japan at $8.52.

107x106 is the answer

hi : ) i found this so i hope this !

"we first find value of tax in dollars.

the difference between the two prices   is: 23. 54 - 22 = 1.54

therefore the sales tax in dollars is 1.54

the tax % will be   (amount of tax / original cost price ) × 100

(1.54 / 22) × 100  → (0.07) × 100 =   7

so the tax rate is 7%

we can double check the answer.

7 % of 22   → (7/100) × 22 → 0.07 × 22 = 1.54

22 + 1.54 = 23.54"