# Firm A is operating in an imperfectly competitive industry knowing: price elasticity of demand is...

## Question:

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 $200 b) What can you conclude about the market power, thinking of the Lerner index, of each firm? Why? ## Optimal Pricing and Price Elasticity of Demand: The price elasticity of demand for a good measures consumer response to a change in the price of the product, in particular, it reports the percentage change in quantity demanded given a percentage change in the price. Firms find optimal to increase the price of the good when consumers will not reduce their quantity demanded in a significant manner. ## Answer and Explanation: a) • Firm A, price elasticity of demand = -1.8 FA1) MC =$ 25, optimal price is $56.25 FA2) MC =$100, optimal price is \$225.00

FA3) MC =...

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