8) 9) Suppose an auto manufacturer sells cars at $10,000 per car. Marginal costs are $5,000 per car. The vice president in charge of sales and marketing says that one month sales with discounts of 10% typically increase sales by roughly 80% during the sale, suggesting a demand elasticity of -8. You advise her to lower her prices on a permanent basis. She responds that her cars are durables and she is worried that she is "stealing" customers and shifting demand from the future. Does she have a point? Assume that Tesla produces two models of electric car: Tesla's Division X produces model "x" and Division Z produces model "2". Each car costs c per car to produce. Px c 1 P2 6 a) Should Tesla price the models so that PX = E and P2 = i? (Note: Ex and E2 are the elasticities of demand for models X and Z respectively, Px is the price of X, and P2 is the price of Z.) If these markup formulas should not be used, explain intuitively why not and whether you think the markups should be larger or smaller than the inverse elasticities. b) Optional Challenge Problem. Derive an exact markup formula for models X and Z assuming that demand for model X is given by X(Px,Pz) and demand for model Z is given by Z(Px,Pz). 10) What do you see as the main costs and benefits of allowing a single firm to gain a monopoly in an industry as opposed to having government step in to break up the rm or prevent its expansion