1. Apple feels it is a price leader in the mobile phone market with all the othe

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?

Explanation / Answer

A) For follower, Marginal revenue of follower = MC(F)

22500 - 10QF - 5QL = 2150 + 4.5QF

20450 = 14.5QF + 5QL

QF = 1410.3 - 0.34QL

For leader,

MR = MC(L)

22500 - 10QL - 5QF = 4450 + 4.25QL

Putting reaction function of follower,

22500 - 10QL - 5(1410.3 - 0.34QL) = 4450 + 4.25QL

10998.5 = 15.95QL

QL = 688.93

QF = 1410.3 - 0.34(688.93) = 1176

P = 22500 - 5 ( 1176+688.93) = 20064.3

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.