Question: Suppose that a firm faces a demand curve that has a constant elasticity of 2. This demand curve is given by q = 256

Suppose that a firm faces a demand curve that has a constant elasticity of – 2. This demand curve is given by

q = 256 / P2

Suppose also that the firm has a marginal cost curve of the form

MC = 0:001q

a. Graph these demand and marginal cost curves.

b. Calculate the marginal revenue curve associated with the demand curve; graph this curve.

c. At what output level does marginal revenue equal marginal cost?


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