Profit maximizing monopolist with +ve mc and downward demand curve will be able to make most profit if demand is price elastic. How? We learned that price inelastic should be the demand to increase revenue hence profit. Also under monopoly demand is inelastic because of no close substitute. But this says elastic.
Hi Shreyansh The wording of this question is slightly ambiguous. I think the examiners intended candidates to state the elasticity of the demand curve at the current level of output. As you say, this is option B (price elastic). Given the ambiguity in the question wording, the examiners also gave credit for option A (price-inelastic). How can we arrive at Option B (price elastic)? We are told that the firm is profit maximising. So, at that level of output MR = MC. Since MC is positive, MR must be positive. Then, if we assume that the demand curve for this monopolist is a straight line, the MR curve will be twice as steep. Recall that the elasticity varies along a straight line demand curve and in particular that demand is elastic in the top half of the curve (where MR is positive and output is less than the profit maximising level) I hope that helps Gresham
