Suppose a firm in an oligopolistic industry faces the following demand curve:
P = 4,900 - 2 Q for Q < 10,000
P = 20,000 - 0.6 Q for Q > 10,000
Suppose further its Cost function is as follows:
TC = 1,000 + 100Q +.5 Q2
a. What price do you suppose they will charge in the short run?
b. What do you suppose will happen in the long-run?
For profit maximization, we set MC=MR
MR = dTR/dQ
So we have TR=4900Q-2Q^2 for Q<10000
and TR = 20000Q-0.6Q^2 for Q>10000
MR= 4900-4Q for Q<10000 and MR=20000-1.2Q for Q>10000
Now let us assume that Q<10,000 then equating MC=MR, we ...
This posting determines profit maximization.