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What I got out of the reading that I did in Doctor Faustus is that when he talks to the Emperor and the Emperor almost calls him out in what Faustus is doing with his black magic.  Then the knight chimes in and wants Faustus to prove himself.  Yet, Faustus gets all defensive, but never really says that he can or can't do "magic".  I think he starts to realize that he dug himself a deep hole for his life, and that he really wasn't thinking about what he was going to be getting himself into with practicing "magic".