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Compute the arc elasticity between two prices

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Question: A monopolistic firm is considering to decrease the price of its product from $10 to $7. According to the available data, the quantity demanded will rise from 1600 units to 1800 units.

(1) Using the midpoint method, compute the arc elasticity between two prices, $10 and $7.

(2) Based on the elasticity you computed in (1), explain whether or not the firm should decrease the price from $10 to $7 in order to increase its revenue.

Reference no: EM133318827

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