1. Apple feels it is a price leader in the mobile phone market with all the othe
ID: 1195495 • Letter: 1
Question
1. Apple feels it is a price leader in the mobile phone market with all the other producers acting as followers. The total demand for mobile phones is given as,
P=22,500-5Q(T)
Apple’s Marginal cost function for their mobile phone is,
MC(L)= 4,450+4.25Q(L)
The overall marginal cost function for the non leaders is
MC(F)= 2,150+ 4.5Q(F)
A. If Apple wants to maximize profits, how many mobile phone units should they produce? How much should they charge?
B. What is the total amount of mobile phones demanded in the market at the price Apple set in the previous question? How many do the followers supply?
Show all work please!
Explanation / Answer
Apple is in equilibrium when its MC = MR and MC is increasing for next unit
AR = 22500-5Q
TR = 22500Q-5Q2
MR = 22500-10Q
MC = 4450-4.25Q
22500-10Q = 4450-4.25Q
5.75Q = 18050
Q = 3139.13 rounded off to next number = 3140
Price = 22500-5(3140) = 22500-15700 = 6800
Apple should sell 3140 phones @ 6800.
Other firms
Demand Curve = 22500 -5(Q) -15700
6800-5Q
TR = 6800Q-5Q2
MR = 6800-10Q
At equilibrium MR = MC
6800-10Q = 2150-4.5Q
5.5Q = 4650
Q = 4650/5.5 = 846 units (rounded off to next number)
P = 6800-5 (846) = 6800-4230 = 2570
MR = MC
Q = 18050/5.75
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.