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Question

The MR curve of a monopoly firm is given by the equation of MR= 20 -4q. At what level of output is the elasticity of demand equal to 1?


  1. 20

  2. 2

  3. 5

  4. 10


Solution

The correct option is C

5


The elasticity of demand equal to one when the total revenue is maximized i.e. when MR=0.
Equating MR to 0, we get, 20 - 4q=0
i.e. 4q =20 or q=5. 

Hence elasticity of demand is equal to 1 at an output level of 5.

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