L&G;\'s Lawn and Garden faces a demand curve of P=100-2Q and a marginal revenue
ID: 1223251 • Letter: L
Question
L&G;'s Lawn and Garden faces a demand curve of P=100-2Q and a marginal revenue for her product of 100-4Q. What do you know about the elasticity of demand for this firm's output? Describe the industry structure and the nature of the firm's situation. Does it face competition? If so what is the nature of that competition? Explain. What is the profit maximizing price and output for the firm which experiences constant marginal costs of $16? why? Is there another market structure which would increase output and lower price? If so. what is the equilibrium price and quantity in the new market structure? Explain.Explanation / Answer
a) Elasticity of demand is the percentage change in quantity demanded due to percentage change in price.
P = 100 - 2Q
2Q = 100 - P
Q = 50 - P/2
dQ/dP = - 1/2
Therefore, elasticity of demand = - 1/2
b) Since, MR of firm is not constant so there is no perfect competition among firms in the industry. There is non-perfect competition.
c) Under profit-maximizing condition: MR = MC
100 - 4Q = 16
100 - 16 = 4Q
82 = 4Q
Q = 20.5 units
P = 100 - 2Q = 100 - 2(20.5) = 100 - 41 = $ 59
P = $ 59
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