A Large Firm That Is a Price Leader in an Industry

question 11

Multiple Choice

A large firm that is a price leader in an industry characterized also by many small competing firms estimates that the market demand for its product to be as follows: Q_m = 20,700 - 75P, where Q_m is units per month.
It expects small firms in the industry to supply output according to the following function: Q_s = 700 + 25P. What is the demand function for the large firm?

• A) Q_L = 20,000 - 100P.
• B) Q_L = 20,000 + 100P
• C) Q_L = 20,700 + 125P
• D) Q_L = 21,400 - 100P
• E) Q_L = 21,400 + 100P

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Definitions:

Elastic Demand

A situation where the quantity demanded of a product changes significantly in response to changes in its price.

Competitive Levels

The degrees of competition within a market, characterized by the number of firms, product differentiation, and market entry or exit barriers.

Nonunion Firms

Companies where the workforce is not represented by a labor union, which may affect wage levels, benefits, and working conditions.

Union Labor

refers to labor that is represented by a union, which negotiates wages, working conditions, and other employment terms on behalf of its members.