2. (Elasticity) Read the New Yorker article, "Amazon's Failed Pitch to Authors," available at the following link: www.newyorker.com/business/currency/amazons-failed-pitch-authors
(a) Assuming that Amazon's internal figures are correct, compute the arc elasticity of demand for the change in price from $14.99 to $9.99 by using the corresponding quantity numbers from the article.
(b) The literary agent, Brian DeFiore, worries that Amazon might continue to lower prices, to perhaps as low as $4.99. Assume that the demand curve for e-books is linear and that Amazon maximizes revenue on its e-book sales. What price would Amazon charge? [Hint: If you assume demand is linear you can work out its formula from the data in the article.] How would your answer change if the demand curve were of the constant-elasticity form (as in Q&A 3.2)?