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Suppose a monopoly is operating with constant marginal costs of production equal to $5 and no fixed costs. It faces a demand with a constant

Suppose a monopoly is operating with constant marginal costs of production equal to $5 and no fixed costs. It faces a demand with a constant price elasticity of -3.

a. Calculate the profit maximizing price and the Lerner index

b. Due to easy entry to the market, the industry will become more competitive over time. What is the profit maximizing price in the long run?

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