A Monopoly Producing a Chip at a Marginal Cost of $6

question 138

Multiple Choice

A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of −2.5.Which price should it charge to optimize its profits?

• A) $6 per unit
• B) $8 per unit
• C) $10 per unit
• D) $12 per unit

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Definitions:

Extra Dividend

A one-time special payment made by a company to its shareholders, in addition to any regular dividends.

NPV Projects

Projects evaluated based on the Net Present Value method, a valuation technique that discounts the expected future cash flows to the present using a specific rate, to determine the profitability and viability.

Total Wealth

The combined value of all financial and non-financial assets owned by an individual or entity.

Stock Repurchase

Stock Repurchase is a corporate action in which a company buys back its own shares from the marketplace, reducing the amount of outstanding stock.