Price Leadership. Leading People Magazine is a dominant price leading firm in th
ID: 1200698 • Letter: P
Question
Price Leadership. Leading People Magazine is a dominant price leading firm in the popular celebrity news magazine market. Moonlighting and National Inquest are competing news magazines that address the same audience. Total and marginal cost relations for each magazine are: Leading People TCL = $12,500 - $1QL + $0.000005QL2 MCL = TCL/QL = -$1 + $0.00001QL Moonlighting TCM = $10,000 + $0.5QM + $0.00005QM2 MCM = TCM/QM = $0.5 + $0.0001QM National Inquest TCN = $50,000 + $1.25QN + $0.000025QN2 MCN = TCN/QN = $1.25 + $0.00005QN and the industry demand curve is: QD = 170,000 - 20,000P Assume throughout this problem that Moonlighting and National Inquest are perfect substitutes for Leading People magazine. Calculate optimal supply for Moonlighting.
Explanation / Answer
Ans:- This is the systematic order to understand and solve the problem.
Moonlighting: PM = MCM = $0.5 + $0.0001QM
0.0001QM = -0.5 + PM
QM = -5,000 + 10,000PM
As the industry price leader, Leading People demand equals industry demand minus following firm supply. Remember that P = PL = PM = PN because Leading People is a price leader for the industry.
QL = Q - QM - QN
= 170,000 - 20,000P + 5,000 - 10,000P + 25,000 - 20,000P
= 200,000 - 50,000P L
PL = $4 - $0.00002QL
MR = MCL
$4 - $0.00004QL = -$1 + $0.00001QL
5 = 0.00005QL
QL = 100,000 units,
PL = $4 - $0.00002QL
= $4 - $0.00002(100,000)
= $2
Because Leading People is a price leader for the industry, so PL = PL = PM = PN = $2
Optimal supply for Moonlighting is:
QM = -5,000 + 10,000PM
= -5,000 + 10,000(2)
= 15,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.