Question
Wayfair and Overstock are two online retailers that compete in the online market for patio furniture. While the products they sell are similar, the firms
Wayfair and Overstock are two online retailers that compete in the online market for patio furniture. While the products they sell are similar, the firms attempt to differentiate themselves through their service policies. Over the last couple of months, Wayfair has matched Overstock's price cuts, but has not matched its price increases. Suppose that when Wayfair matches Overstock's price changes, the inverse demand curve for Wayfair's furniture is given by P = 1,500 3Q. When it does not match price changes, Wayfair's inverse demand curve is P = 900 0.50Q. Based on this information, determine Wayfair's inverse demand and marginal revenue functions over the last couple of months. Over what range will changes in marginal cost have no effect on Wayfair's profit-maximizing level of output?
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