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Consider the constant-elasticity demand function Q = p−ε, where ε > 0. Solve for the inverse...

Consider the constant-elasticity demand function Q = p−ε, where ε > 0.

Solve for the inverse demand function p(Q).
Calculate the demand price elasticity.
Show that p(Q)/MR(Q) is independent of the output level Q. (Hint: Use the relationship between marginal revenue and the elasticity of demand.)

Solutions

Expert Solution

The demand function is given as .

The inverse demand function would be as or or or or .

The demand price elasticity would be or or or or or or .

The TR would be as or or , and hence MR would be or or or . Thus, or or , which is not a function of Q, and hence is independent of Q.

Rahul Sunny answered 1 year ago

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