A Large Firm That Is a Price Leader in an Industry

question 20

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 = 28,700 - 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 = 1,700 + 25P. What quantity and price will the large firm set?

• A) Q = 1,350, P = 135
• B) Q = 1,435, P = 143.5
• C) Q = 1,350, P = 67.5
• D) Q = 1,435, P = 71.75
• E) None of the above

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Definitions:

Profit Opportunities

Situations where individuals or firms can earn a return on investment that is more than the norm, often due to market inefficiencies or information asymmetries.

Opportunity Cost

The cost of choosing one option over another, represented by the benefits that could have been obtained by choosing the alternate option.

Opportunity Cost

Neglecting possible gains from other scenarios by focusing on a singular choice.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits one could have received by taking a different course of action.