00:01
So we have two demand curves for a firm operating in a differentiated product oligopoly.
00:19
So we have d1 and d2.
00:23
Initially, firm charges the price of $60 and produces 10 units.
00:34
One of the demand curves is relevant when rivals match the firm's price changes.
00:39
The other one is relevant when they do not match the price changes.
00:46
For what range and marginal cost will the firm continue to charge a price of $60? we're going to use the earnings maximizing condition.
01:37
Profit is maximized when the marginal cost is equal to marginal revenue.
01:53
We need the range, the marginal cost for which the organization will keep the price at $60.
02:10
So the demand curve is less elastic if price changes are ignored by rivals.
02:40
So this is when price changes are ignored.
02:43
And the other one would be when the price changes are not ignored and they're matched by the rivals.
03:04
So before we answer that part, we have to go back and answer the previous part.
03:08
Suppose the manager believes that rivals will match price cut but will not match price increases.
03:15
What price will the firm be able to charge if it produces 20 units? so the changes are ignored.
03:32
We're going to look at curve d2.
03:34
So then for the quantity of 20 we draw a line up to d2 and we get a price of $20.
03:57
However, the question says that rivals will match the price cut.
04:01
So if we think about it, it looks like our price will be cut either way because if we draw a line from 20 units to d1, we end up with 50.
04:15
So the best answer should be $50.
04:19
How many units will it sell if it charges a price of 70? so it's not going to match a price increase.
04:56
So then we're going to find the price of 70 and then we know that since they're not going to match it, we look at d2, the change is ignored...