Solution-Show that the gross increase in profits from

Show that the gross increase in profits from raising price

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Reference no: EM13874532

Consider a market with constant elasticity of demand (ε) and constant marginal cost equal to c. The gross increase in profit from increasing price by dp is dp(q + dq). The gross decrease in profit from increasing price by dp is -(m)( p)(dq) where m is the prevailing price-cost margin ( p - c)/ p. [Hint: dq is negative.]

(a) Show that the gross increase in profits from raising price by dp equals pqt(1 - tε). Recall that t = (dp/ p).

(b) Show that the gross decrease in profits from raising price by dp equals mptqε.

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Show that the gross increase in profits from raising price

Reference no: EM13874532

Reference no: EM13874532

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