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Suppose that there are one consumer of type A and another consumer of type B. A's inverse demand function: p = 4-x and B's inverse

  • Suppose that there are one consumer of type "A" and another consumer of type "B".
  • A's inverse demand function: p = 4-x and B's inverse demand function : p = 2-2/3x
  • There is one firm with cost function c(x)=tx^2 + 1 (where t>0)

Suppose that t>1/2. Calculate the aggregate surplus in equilibrium and derive t-elasticity of aggregate surplus in equilibrium.

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