Suppose we have a monopolist who sells goods in markets A and B. The monopolist faces a constant-elasticity demand curve that is the same in both markets. We do not know the exact elasticity. (It may be different in parts A. and B.) 

A. Suppose we have data from market A. The good sells for pA = $9 and the monopolist's marginal cost is c = $6. What is the elasticity of demand?

B. Suppose that the monopolist has constant marginal cost of production (same in both markets). We do not know the marginal cost, and it may be different from the previous part. This good is taxed in market A such that the firm must pay the government $4 per unit sold in market A. There is no tax in market B. The good sells for pA = $20 and pB = $15. What is the elasticity of demand? You may assume that marginal costs of production are unaffected by the taxes.

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Solutions A Finding Elasticity in Market A 1 Utilize the PriceMargin Formula The pricemargin formula ... View the full answer