Questions 1 through 5 refer to the following scenario. Suppose three firms face
ID: 1218497 • Letter: Q
Question
Questions 1 through 5 refer to the following scenario. Suppose three firms face the same total market demand for their product. This demand is: Price (P) Quantity (Q) dollar 80 20, 000 70 25,000 60 30, 000 50 35,000 Suppose further that all three firms are selling their product for dollar 60 and each has about one-third of the total market. What is the amount of total revenue each firm receives, in dollars?600, 000 Now assume that one of the firms, in an attempt to gain market share at the expense of the others, drops its price to dollar 50. The other two quickly follow suit. What is the amount of total revenue each firm now receives, in dollars, rounded to the nearest dollar?583,333 What impact has the price drop had on the revenue of each firm? Each firm has less revenue. Each firm has more revenue. The price-dropper has more revenue and the others have less. The price-dropper has less revenue and the others have more. If the firms had all raised their prices to dollar 70 instead of lowering price, what would be the amount of total revenue each firm would have received, in dollars, rounded to the nearest dollar? Would the firms have been better off raising the price to dollar 70, lowering to dollar 50, or making no change? Raising to dollar 70 Lowering to dollar 50 Making no change (keeping price at dollar 60)Explanation / Answer
1) Market share of each firm = 30,000/3
Market share of each firm = 10,000
Revenue of each firm = 10,000 X $ 60
Revenue of each firm = $ 600,000
2) The total market demand at a price of $ 50 = 35,000
Market share of each firm = 11,666.67
Revenue of each firm = 11,666.67 X $ 50
Revenue of each firm = 583,333.33
3) Each firm has less revenue
4) The market demand at price of $ 70 = 25,000
Market share of each firm = 8,333.33
Revenue of each firm = 8,333.33 X $ 70
Revenue of each firm = 583,333.33
5) Making no change ( keeping price at $ 60)
Related Questions
Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.