Econ 201

2. Price elasticity of demand is the quantitive measure of consumer behavior that indicates the quantity of demand of a product or service depending on its increase or decrease in price. Price elasticity of demand can be calculated by the percent change in the quantity demanded by the percent change in price.

Price elasticity of demand is determined by the price of the item or service, availability of alternative goods, amount of time being measured, consumer income and whether the item or service is considered to be a necessity or a luxury.

marginal revenue is positive for the monopolist on the elastic portion of the demand curve, and negative for the inelastic part. The monopolist will put out his output when marginal revenue= marginal cost.

3. 8. Why is the monopolistic competitor's demand curve more elastic than a pure monopolist's, but less elastic than a pure competitor's? What factors determine the price elasticity of demand for a monopolistic competitor? A monopolistic competitor's demand curve is more elastic than a pure monopolist's because the monopolistic competitor has a number of competitors and close substitutes, while the monopolist has no competitors. A monopolistic competitor's demand curve is less elastic than a pure competitor's because there are fewer rivals and its products are differentiated, so there aren't perfect substitutes. The main factors that affect the price elasticity of demand for a monopolistic competitor are the number of rivals and the amount of product differentiation. If the number of rivals is large, the elasticity for the product increases. If the amount of differentiation is large, then the elasticity decreases. [text: E pp. 219-220; MI pp. 219-220]

4. externalities are like side effects on parties outside the firm. e.g. assume that I have decided to build a dam to produce hydroelectricity. In doing so, my main sources of revenue are the reserve I have developed behind the dam, the electricity I have produced...