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Question: A firm in an oligopolistic industry has identified two sets of demand curves. If the firm is
the only one that changes prices (i.e., other firms do not follow), its demand curve takes the form Q =
82-8P. If, however, it is expected that competitors will follow the price actions of the firm, then the
demand curve is of the form Q = 44 -3P.
a) Develop demand schedules for each alternative, and draw them on a graph
b) Calculate marginal revenue curves for each.
c) If the present price and quantity position for the firm is located at the intersection of the two
demand curves, and competitors follow any price decrease but do not follow a price increase,
show the demand curve relevant to the firm.
d) Draw the appropriate marginal revenue curve.
e) Show the range over which a marginal cost curve could rise or fall without affecting the price
the firm charges.
Answer:
a) The demand schedule for each alternative is in the table below
Quantity Price Q1 (Q1 = 82-8P) Q2 (Q2 = 44-3P)
95 1 74 41
90 2 66 38
80 3 58 35
70 4 50 32
60 5 42 29
50 6 34 26
40 7 26 23
30 8 18 20
20 9 10 17
10 10 2 14
5 11 -6 11
The Demand Curve is:
Question: A firm in an oligopolistic industry has identified two sets of demand curves. If the firm is
the only one that changes prices (i.e., other firms do not follow), its demand curve takes the form Q =
82-8P. If, however, it is expected that competitors will follow the price actions of the firm, then the
demand curve is of the form Q = 44 -3P.
a) Develop demand schedules for each alternative, and draw them on a graph
b) Calculate marginal revenue curves for each.
c) If the present price and quantity position for the firm is located at the intersection of the two
demand curves, and competitors follow any price decrease but do not follow a price increase,
show the demand curve relevant to the firm.
d) Draw the appropriate marginal revenue curve.
e) Show the range over which a marginal cost curve could rise or fall without affecting the price
the firm charges.
Answer:
a) The demand schedule for each alternative is in the table below
Quantity Price Q1 (Q1 = 82-8P) Q2 (Q2 = 44-3P)
95 1 74 41
90 2 66 38
80 3 58 35
70 4 50 32
60 5 42 29
50 6 34 26
40 7 26 23
30 8 18 20
20 9 10 17
10 10 2 14
5 11 -6 11
The Demand Curve is:
