Consider a market with network externalities, where demand is Q- 100-1P. Let pri

Question

Consider a market with network externalities, where demand is Q- 100-1P. Let price initially be $30, where current demand without network externalities would be 1 -130.00-2.00P. Suppose the price falls to $10, where demand without network externalities would be 2-110.00-2.00P. With network externalities, the price change increases the quantity demanded by 20 units. (Enter your response using an integer.) Without externalities, the price change would have increased the quantity demanded by 40 units. Therefore, the network externality the quantity demanded by units

Explanation / Answer

Demand with network externalities -

Q = 100 - 1P

At P = $30,

Q = 100 - 1P = 100 - 1*30 = 100 - 30 = 70 units

At P = $10,

Q = 100 - 1P = 100 - 1*10 = 100 - 10 = 90 units

increase in quantity demanded = 90 units - 70 units = 20 units

With network externalities, the price change increases the quantity demanded by 20 units.

At P = 30, demand without network externalities is,

Q1 = 130 - 2P = 130 - (2*30) = 130 - 60 = 70 units

At P = 10, demand without network externalities is,

Q2 = 110 - 2P = 110 - (2*10) = 110 - 20 = 90 units

Increase in quantity demanded = 90 units - 70 units = 20 units

Without network externalities, the price change increases the quantity demanded by 20 units.

Therefore, network externalities increases the quantity demanded by 0 units.

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