Question: Using the data in Example 5 .4 , calculate the market de- mand elasticity for automobiles in the mid-1950s. For large changes in price and

Using the data in Example 5 .4 , calculate the market de- mand elasticity for automobiles in the mid-1950s. For large changes in price and quantity, an arc elasticity is used. One common method of calculating an arc elas- ticity is to use the midway point between the two price- quantity pairs: (p. q) and (p", q*). Thus, the formula for an arc elasticity is

9-9 2)/(C = p + p

Is that number consistent with the theory that there was a profit-maximizing cartel in 1954? Why or why not?

9-9 2)/(C = p + p

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