Question

Chillman Motors, Inc., believes it faces the following segmented demand function:


a. Indicate both verbally and graphically why such a segmented demand function is likely to exist. What type of industry structure is indicated by this relationship?
b. Calculate the marginal revenue functions facing Chillman. Add these to your graph from Part (a).
c. Chillman’s total cost function is
TC1 = 500 + 15Q+0:5Q2
Calculate the marginal cost function. What is Chillman’s profit-maximizing price and output combination?
d. What is Chillman’s profit-maximizing price-output combination if total costs increase to
TC2 = 500 + 45Q+0:5Q2
e. If Chillman’s total cost function changes to either
TC3 = 500 + 15Q+1:0Q2
or
TC4 = 500 + 5Q+0:25Q2
What price-output solution do you expect to prevail? Would your answer change if you knew that all firms in the industry witnessed similar changes in their costfunctions?


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  • CreatedDecember 03, 2012
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