The kinked demand curve and cost curves above show what Company A is facing in t
ID: 1158699 • Letter: T
Question
The kinked demand curve and cost curves above show what Company A is facing in the market.
A) How many units will the firm produce f the firm's marginal cost is MC0?
B) What price will the firm charge, if the firm's marginal cost curve is MC0?
C) What will happen to the firm’s profit maximizing output level if the firm's marginal cost curve shifts from MC0 to MC1?
D) What price will the firm charge, if the firm's marginal cost curve is MC1?
MC MC 0 25 15 10 5 MR 0 10 20 30 40 50 60 Quantity (units per day)Explanation / Answer
Answer:
A and B) the firm will produce quantity Q=30 at price 20.
C and D)There will be no change in the firm's profit-maximizing quantity and price as it is operating in the portion of the MR curve where the oligopolistic organization cannot increase the prices. This is because if the organization would increase the prices, the rival organizations would decrease their prices and gain the market share.
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