Price Elasticity of Demand and its Relevance in Terms of Welfare in a Monopolistic Market

By Juan Pablo Herrera Saavedra (Superintendencia de Industria y Comercio)

This document analyzes since a monopolistic situation the effect in terms of consumer welfare derived of changes in the price elasticity of demand. The paper assumes a constant price elasticity of demand function and constant return of scale associated with the seller of the service of good firm. It is found that a greater level of elasticity, greater the level of profits of the monopolistic firm in relative terms to the consumer surplus in perfect competition.

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