Suppose that the demand functions for price increases and for price cuts facing an oligopolist are, respectively, Q1=560-80p1
and
Q2=200-20p1
Suppose that the firm’s total cost function is TC=4Q+0.050Q^2
3.1 Derive the MR1, MR2 and MC functions facing the oligopolist.
3.2 Determine the price and the output at the kink on the demand curve.
3.3 Determine the upper and lower limits of the MR gap and prove that MC falls in the MR gap.
3.4 Draw a well labelled diagram to capture the kinked demand curve.
3.5 Calculate the total profits of the firm at output Q.
1 answer