1.5 For your answer in 3a:

a Calculate the price elasticity of demand in each market at the optimal price.

b Verify that the prices and elasticities are consistent with the profit- maximizing formula, P = MC/ ([1+ 1/ Ep]).

c Why are both elasticities fairly close to unity? (Hint: Think about the requirement for profit maximization when marginal cost is zero.)

d If a firm finds that its price elasticity is numerically less than 1, what advice would you have?