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Consider a market with network externalities, where demand is Q
Consider a market with network externalities, where demand is Q .100 - 1P. Let price initially be S30, where current demand without network externalities would be 0. = 130.00 - 2.00P. Suppose the price falls to S10, where demand without network externalities would be 02 = 110. 00 - 2.00P. With network externalities, the price change increases the quantity demanded by 20 units. (Enter your resirtnse using an integer.) Without externalities, the price change would have increased the quantity demanded by 40 units. Therefore, the network externality `:4 the quantity demanded by units.
Expert Solution
Market with network externalities:
Q = 100 - 1P
Price = $30, Q = 100 -1*30 = 70 units
Price = $10, Q = 100 - 1*10 = 90 units
With network externalities, the price change increases the quantity demanded by = 90 - 70 = 20 units.
Without Network Externalities:
Price initially = $30
Current demand without network externalities:
Q1 = 130 - 2P
Q1 = 130 - 2*$30
Q1 = 130 - 60
Q1 = 70 units
Price falls to = $10,
Demand without network externalities:
Q2 = 130 - 2P
Q2 = 130 - 2*$10
Q2 = 130 - 20
Q2 = 110 units
Without network externalities, the price change increases the quantity demanded by = 110 - 70 = 40 units.
Therefore, the network externality increases the quantity demanded by (40-20) = 20 units.
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