Firm A is operating in an imperfectly competitive industry knowing: price elasticity of demand is -1.8.
Firm B is operating in an imperfectly competitive industry knowing: price elasticity of demand is -2.3.
a) Find the optimal price for each if MC = $25, $100, and $200
b) What can you conclude about the market power, thinking of the Lerner index, of each firm?
Optimal Pricing and Price Elasticity of Demand:
The price elasticity of demand for a good measures consumer response to a change in the price of the product, in particular, it reports the percentage change in quantity demanded given a percentage change in the price. Firms find optimal to increase the price of the good when consumers will not reduce their quantity demanded in a significant manner.
Answer and Explanation:
- Firm A, price elasticity of demand = -1.8
FA1) MC = $ 25, optimal price is $ 56.25
FA2) MC = $100, optimal price is $225.00
FA3) MC =...
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from Intro to Business: Help and ReviewChapter 3 / Lesson 54