Assume that the fi rm in Exercise 3 cannot prevent resale and is forced to set the same price in both markets. Find the price graphically and/or algebraically and show that total profi ts are less than those from part 3a.

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 profi t-maximizing for mula given in Footnote 4.

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

(d) If a fi rm fi nds that its price elasticity is numerically less than 1, what advice would you have?