1. The graph that accompanies this question illustrates two demand curves for a firm operating in a differentiated product oligopoly. Initially, the firm charges a price of $60 and produces 10 units of output. One of the demand curves is relevant when rivals match the firm’s price changes; the other demand curve is relevant when rivals do not match price changes.

a. Which demand curve is relevant when rivals will match any price change?

b. Which demand curve is relevant when rivals will not match any price change?

c. Suppose the manager believes that rivals will match price cuts but will not match price increases.

(1) What price will the firm be able to charge if it produces 20 units?
(2) How many units will the firm sell if it charges a price of $70?
(3) For what range in marginal cost will the firm continue to charge a price of $60?

Transcribed Image Text:

Price 110 100 90 80 70 60 50 40 30 20 D D 10 0 - Quantity 0 3 6 9 12 15 18 21 24