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As discussed in Units 7, elasticity of a demand curve is given by the formula: . We also learned that the slope of the iso-profit
As discussed in Units 7, elasticity of a demand curve is given by the formula: . We also learned that the slope of the iso-profit curve is given by: , where P denotes the price of the normal good, Q denotes the quantity demanded, MC is the marginal cost of producing the good, and determines the demand elasticity of good. Use this information to answer below: a) Draw an iso-profit curve, to show via a contrast, and explain the relationship between elasticity of demand and markup that monopolist charges (Hint: Recall that the equilibrium is the point of tangency between the demand curve and iso-profit curve) [Marks = 10] b) How and why does the deadweight loss change with the elasticity of the product? Illustrate your answer with appropriate well-labelled figures. [Marks = 10]
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