Price elasticity of demand
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What is the difference in the price elasticity of demand for an individual firm in a perfectly competitive industry as compared with a monopolist. Why are the price elasticity different?
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Solution Summary
The difference in the price elasticity of demand for an individual firm in a perfectly competitive industry as compare to a monopolist are examined. Why price elasticity is different is determined.
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First, let me explain what price elasticity of demand (hereafter ped) is. ped measure how responsive consumers are to price changes. When ped is between 0 and -1, we call this inelastic (which means that when price goes up by 10%, the quantity decrease by less than 10%). When ped is -1, this is called unitary elastic (meaning that when prices goes up by 10%, the quantity demanded decreases by exactly 10%). Finally, ped between minus infinity to -1 is called elastic and this means ...
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