question archive A market is characterized by a demand curve that can be expressed as P=400−5QP=400−5Q
A market is characterized by a demand curve that can be expressed as P=400−5QP=400−5Q
Subject:MarketingPrice:2.88 Bought3
A market is characterized by a demand curve that can be expressed as P=400−5QP=400−5Q. Each of the firms currently serving the market has a total cost function of the form C=50qC=50q. There are no fixed costs. If the market is served by a monopolistic firm that practices limit pricing, calculate single-period P∗,Q∗P∗,Q∗, and profits for the limit-pricing monopolist. Assume that each potential entrant has the total cost curve given by C=150q.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Note that for it to be unprofitable for new firms to enter, the price must not be higher than the average variable cost of the new entrants. Given the cost function for the new entrants, the average variable cost is 150. So the incumbent monopolistic firm will set price equal to 150. At this price, the total quantity produced = total quantity demanded = (400 - 150) / 5 = 50. Total profit for the monopolistic firm = 150*50 - 50*50 = 500.
