a.
Relevant demand curve when rivals match the price change.
a.
Answer to Problem 1CACQ
D2is the relevant demand curve when the rivals match any change in the price level.
Explanation of Solution
When the rival firm match the changes in level of price, the demand curve that is inelastic is more relevant. The reason is that in case of inelastic demand, when there is a change in the price level, the percentage of demand of the consumer does not reduce more than the percentage increase in the prices. D2 is more inelastic than D1, therefore, it is more relevant.
Introduction: Oligopoly can be interpreted as the form of market that involves few big firms. The prices charged by the firms in this type of market are based on the prices charged by the competitors. Oligopolies often results in reduced competition due to price collusion.
b.
Relevant demand curve when the rivals do not match any price change.
b.
Answer to Problem 1CACQ
D1is the relevant demand curve when the change in the level of price is not matched by the rival firms.
Explanation of Solution
The elastic demand curve tends to be more relevant when the change in level of price is not matched by the rival firm. Therefore, D2 is the more relevant demand curve.
Introduction: Oligopoly can be interpreted as the form of market that involves few big firms. The prices charged by the firms in this type of market are based on the prices charged by the competitors. Oligopolies often results in reduced competition due to price collusion.
1)
Price charged by the firm if 20 units are produced.
1)
Answer to Problem 1CACQ
If 20 units are produced, then the price charged is $20.
Explanation of Solution
If a firm produces 20 units of output, it faces the lower portion of the demand curve. The lower portion of the demand curve D2, from the point of kink indicates that the price charged is $20.
Introduction:Oligopoly can be interpreted as the form of market that involves few big firms. The prices charged by the firms in this type of market are based on the prices charged by the competitors. Oligopolies often results in reduced competition due to price collusion.
2)
Number of units sold if price is $70.
2)
Answer to Problem 1CACQ
Zero units are sold when the price is $70.
Explanation of Solution
When the price level of the firm is more than $60, the upper portion of the demand curve is relevant. At that level, the quantity produced is zero.
Introduction: Oligopoly can be interpreted as the form of market that involves few big firms. The prices charged by the firms in this type of market are based on the prices charged by the competitors. Oligopolies often results in reduced competition due to price collusion.
3)
Range in marginal cost when the firm continues to charge a price of $60.
3)
Answer to Problem 1CACQ
The range of the marginal cost when the firm continues to charge a price of $60 is $20 to $50.
Explanation of Solution
The range at which the changes in the marginal cost does not lead to changes in the profits of the firm is the range where the marginal revenue also remains unchanged. According to the marginal revenue curves of the firms, the profit level remains same when price is changed from $20 to $50.
Introduction: Oligopoly can be interpreted as the form of market that involves few big firms. The prices charged by the firms in this type of market are based on the prices charged by the competitors. Oligopolies often results in reduced competition due to price collusion.
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Chapter 9 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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