5. Consider a software company which has considerable market power over one of its products. The company sells its products online so the marginal cost is practically zero. (a) Show that the profit maximizing price-quantity combination is at the point on the demand curve that the price elasticity of demand is equal to 1. (b) Suppose that the inverse demand function is given by p = a - bq. Show that unitary elasticity is at the mid-point of the curve.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
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Chapter3: Demand Analysis
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5. Consider a software company which has considerable market power over one of its
products. The company sells its products online so the marginal cost is practically zero.
(a) Show that the profit maximizing price-quantity combination is at the point on the demand
curve that the price elasticity of demand is equal to 1.
(b) Suppose that the inverse demand function is given by p = a - bq. Show that unitary
elasticity is at the mid-point of the curve.
Transcribed Image Text:5. Consider a software company which has considerable market power over one of its products. The company sells its products online so the marginal cost is practically zero. (a) Show that the profit maximizing price-quantity combination is at the point on the demand curve that the price elasticity of demand is equal to 1. (b) Suppose that the inverse demand function is given by p = a - bq. Show that unitary elasticity is at the mid-point of the curve.
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