Assume two firms exist in the market, Buckley, and Stetler. If they merge, they will have fixed costs of $140,000, marginal costs of $50, and a market share of 6 percent. The price elasticity of demand for clinic services is -0.22. Assume the volume of patients at the profit-maximizing price is 24,600. The merged firm's estimated price elasticity of demand is:

a. -0.3667

b. -36.667

c. -6

d. -3.667

Estimated price elasticity of demand can be found by taking the percentage change in quantity demanded and dividing that by the percentage change in price. Given that the merged company of Buckley and Stetler has a fixed cost $140,000 and the price elasticity of demand is -0.22. We also need to determine the percentage change in quantity demanded. The volume of profit-maximizing price is 24,600. We would need to take the fixed costs of 140,000 and add the marginal costs of 543447.233 (50 * 10,868.94) to total 683,447.233. We would then multiply this by the market share of 6 percent to equal 41,006.834. We would then need to take 68,356.116 (margin cost) and divide this by the market share cost of 41,006.834 to equal 0.5999.

Our final calculation is -0.22 / 0.5999 = -0.36672778, or answer a. -0.3667