Using the data in Example 6.6, calculate the market demand 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 elasticity 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

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

9-9* 9+q* P-P p+ p*