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A rule of thumb is used to determine if the monthly rent earned from a piece of investment property will exceed that property's monthly mortgage payment.
Using the rule of thumb pricing the profit-maximizing price of a monopoly firm is = [tex]P = MC/1+(1/Ed)[/tex]
Ed is the elasticity of demand for a firm, not the market. So,
[tex]Ed = -3.P = $50/1+ (1/(-3)) = $50/(1-1/3)p = 50/(2/3 ) = $75[/tex] dollar.
Monopoly power (also known as market power) refers to the ability of a company to charge a price higher than its marginal cost. Monopoly power usually exists when demand is less elastic and barriers to entry are large.
There are three main sources of monopoly power: (1) price elasticity of demand (Ed), (2) number of companies in the market, and (3) interaction between companies. The price elasticity of demand is the most important determinant of market power for price rules: L = (P – MC) / P = -1 / Ed.
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