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Consider a monopolist with constant marginal cost c(c<1) which faces the following demand function Q(p,A)=1+A^(1/2)-p where A is the advertising expenditure and p is a relevant price.
(a) Derive the monopolist's optimal price and advertising expenditure. Be sure that your answers should be a function of exogenous parameters (here c).
(b) Find the price elasticity of demand and the advertising elasticity of demand at (p*,A*)
An "increase in the quantity demanded" means that a. the demand curve has shifted to the right
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