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1)True or false? For linear demand, the slope and the elasticity are identical at any given price
1)True or false? For linear demand, the slope and the elasticity are identical at any given price.
2)In 1987, a company called Burroughs-Wellcome introduced its anti-AIDS drug AZT and an introductory price of $12,000 annually. Suppose the marginal cost of producing an annual dosage of the drug was $100 and that $12,000 was the optimal price. What is effect on the number of annual doses sold of a 10% increase in the price of the drug? Explain how you obtain your answer, showing all calculations.
Expert Solution
1)The given statement is false
In the case of the linear demand curve, the slope of the demand curve remains the same throughout the range; but the elasticity of price changes while moving from one point on the demand curve to another. This is because price elasticity of demand not only takes the slope but also the absolute value of price and quantities.
2)please see the attached file for the complete solution.
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