Relationship between elasticity and profit maximizing price

Reference no: EM1311173

A monopolistically competitive firm finds that the elasticity of demand facing its brand is -1.5, while its rival faces an elasticity of -2 for its brand. Both firms have a marginal cost of $5 per unit. Using the pricing rule of thumb, determine the profit-maximizing prices both firms will charge. In addition, calculate the price-cost margin for each firm and indicate which has more pricing power and why.

Reference no: EM1311173

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