If a monopolist charges the same price for all of its output (i.e., it does not price discriminate), total revenue for the Örm will be TR = P(Q)Q: Show that:
(a) Total revenue is maximised when prices and quantities are set so that demand elasticity is -1. [2 marks]
(b) Explain why a monopolist would never produce at an outut level at which demand elasticity is -1 (part I). Or why a monopolist will always produce an output lower than that which would maximize its total revenue? (part II). (Hint: What is the objective of a monopo- list?) [1 mark]