Assume that the firm in Exercise 3 cannot prevent resale and is forced to set the same price in both markets. Find the QUS = 300,000 – 5,000PUS and QX = 240,000 – 8,000PX price graphically and/or algebraically and show that total profits are less than those from part 3a. 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 given in footnote 4. (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 one, what advice would you have?
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Assume that the firm in Exercise 3 cannot prevent resale and is forced to set the same price in both 1 answer below »