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Suppose you observe a monopolist charging a price of $10, and you are told that the marginal cost for this monopolist is constant at $5.
Suppose you observe a monopolist charging a price of $10, and you are told that the marginal cost for this monopolist is constant at $5. You also know that the market can be represented by a constant elasticity of demand function.
(a)[5 points] What is the price elasticity of demand in this market?
(b)[5 points] Suppose marginal costs increases by $2. What is the new price in this market?
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