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Homework answers / question archive / A equilibrium market price for a good is $100 per? unit, and a firm has a marginal cost curve given? by: MC=25+0
A equilibrium market price for a good is $100 per? unit, and a firm has a marginal cost curve given? by: MC=25+0.5q.
Assuming the firm operated in an Oligopoly and priced their product below the answer to part a, what are the implications of that move? Please explain.
a) A firm in a operating in Perfect competition are a price taker . so they cannot influence the market price niether they can charge thier own profit maximizing price. so they choose the market price and hence market price is the marginal revenue for perfect competiion firm and they choose the output where MR =MC or P =MC. so the profit maximizing price of perfect competition firm is $100 per unit.
b) A profit - maximizing quantity is the quantity where the MR=MC. or P=MC because for a perfect comeptition firm P=MR.
100 = 25 + 0.5q
100 -25 = 0.5q
75 = 0.5q or q = 150
so profit maximizing quantity is 150 units.
c) When a firm operated in an Oligopoly , then they are in price competition against their rivalry firms . when they priced just below the market equilbruim price , they do this for the intend to grab maximum market share and hence the quantity demanded for thier product will increase and so the total revenue and profit would increase to.