Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose we have a monopolist who sells goods in markets A and B. The monopolist faces a constant-elasticity demand curve that is the same in

Suppose we have a monopolist who sells goods in markets A and B. The monopolist faces a constant-elasticity demand curve that is the same in both markets. We do not know the exact elasticity. (It may be different in parts A. and B.) 

A. Suppose we have data from market A. The good sells for pA = $9 and the monopolist's marginal cost is c = $6. What is the elasticity of demand?

B. Suppose that the monopolist has constant marginal cost of production (same in both markets). We do not know the marginal cost, and it may be different from the previous part. This good is taxed in market A such that the firm must pay the government $4 per unit sold in market A. There is no tax in market B. The good sells for pA = $20 and pB = $15. What is the elasticity of demand? You may assume that marginal costs of production are unaffected by the taxes.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

Solutions A Finding Elasticity in Market A 1 Utilize the PriceMargin Formula The pricemargin formula ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics An Intuitive Approach with Calculus

Authors: Thomas Nechyba

1st edition

538453257, 978-0538453257

More Books

Students also viewed these Economics questions

Question

What are the two integer classes of Ruby?

Answered: 1 week ago