{"id":36879,"date":"2025-06-25T10:03:31","date_gmt":"2025-06-25T10:03:31","guid":{"rendered":"https:\/\/gaviki.com\/blog\/?p=36879"},"modified":"2025-06-25T10:03:33","modified_gmt":"2025-06-25T10:03:33","slug":"suppose-that-the-own-price-elasticity-of-the-market-demand-for-tv-is-0-4","status":"publish","type":"post","link":"https:\/\/gaviki.com\/blog\/suppose-that-the-own-price-elasticity-of-the-market-demand-for-tv-is-0-4\/","title":{"rendered":"Suppose that the own-price elasticity of the market demand for TV is \u20130.4"},"content":{"rendered":"\n<p>Suppose that the own-price elasticity of the market demand for TV is \u20130.4. If the (monopoly) seller raises the price a little bit, its profit will <strong><em>__<\/em><\/strong> A. increase. B. decrease. C. increase or decrease, depending on other factors<\/p>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\">The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p><strong>Correct Answer: A. increase<\/strong><\/p>\n\n\n\n<p><strong>Explanation:<\/strong><\/p>\n\n\n\n<p>The own-price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price. In this case, the elasticity of demand for TVs is \u20130.4. This means that for a 1% increase in price, the quantity demanded decreases by only 0.4%. The demand is said to be <strong>inelastic<\/strong> because the absolute value of the elasticity (|\u20130.4| = 0.4) is less than 1.<\/p>\n\n\n\n<p>When demand is inelastic, consumers are relatively unresponsive to changes in price. So, if a monopolist increases the price of TVs, the drop in quantity sold will be proportionally smaller than the increase in price. This results in <strong>an increase in total revenue<\/strong>. Since the cost of producing TVs generally remains the same or increases more slowly than revenue in the short run, <strong>profit will also increase<\/strong>.<\/p>\n\n\n\n<p>A monopolist considers both marginal revenue and marginal cost when making pricing decisions. In the inelastic region of the demand curve, <strong>marginal revenue is positive<\/strong>, and raising prices leads to higher total revenue. As long as marginal cost does not increase sharply with output, profits rise with higher prices.<\/p>\n\n\n\n<p>In competitive markets, firms are price takers and cannot raise prices without losing customers. However, a monopolist has pricing power and can influence the market price. In this scenario, the monopolist can exploit the inelastic demand to increase profits by raising prices.<\/p>\n\n\n\n<p>In conclusion, because the demand is inelastic (|\u20130.4| &lt; 1), a small increase in price will cause total revenue to rise and costs to stay relatively stable, leading to a <strong>higher profit<\/strong>. Therefore, the correct answer is <strong>A. increase<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Suppose that the own-price elasticity of the market demand for TV is \u20130.4. If the (monopoly) seller raises the price a little bit, its profit will __ A. increase. B. decrease. C. increase or decrease, depending on other factors The correct answer and explanation is: Correct Answer: A. increase Explanation: The own-price elasticity of demand [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-36879","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/36879","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=36879"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/36879\/revisions"}],"predecessor-version":[{"id":36888,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/36879\/revisions\/36888"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=36879"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=36879"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=36879"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}