PC Connection and CDW are two online retailers that compete in an Internet marke
ID: 1122050 • Letter: P
Question
PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies. Over the last couple of months, PC Connection has matched CDW's price cuts, but has not matched its price increases. Suppose that when PC Connection matches CDW's price changes, the inverse demand curve for CDW's cam eras is given by P= 1,500-3Q, when it does not match price changes, CDW's inverse demand curve is P= 900-05Q Based on this information, determine CDW's inverse demand function over the last couple of months 0.51 Q if Q 240 1500-3 o if Q 240 Over what range will changes in marginal cost have no effect on CDW's profit-maximizing level of output?Explanation / Answer
You need to find the two marginal revenue curves and their values at Q = 240
MR1 = 1500 - 6Q and MR2 = 900 - Q
Range of price over which MC can fluctuate is
1500 - 6*240 = $60 to 900 - 240 = $660
Hence it is $60 to $660.
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