ECON 625 Problem Set 5 Printable(1).docx - ECON 625...

ECON 625 Managerial Economics
Problem Set 5
1) 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)
$80 20,000
70 25,000
60 30,000
50 35,000
Suppose further that all three firms are selling their product for $60 and each has
about one-third of the total market.
What is the amount of total revenue each firm receives, in dollars?
2) Now assume that one of the firms, in an attempt to gain market share at the
expense of the others, drops its price to $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?
3) What impact has the price drop had on the revenue of each firm? 4) If the firms had all raised their prices to $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?
5) Would the firms have been better off raising the price to $70, lowering to $50, or
making no change?