Assume That Total Demand in a Market Is 1 and That

question 38

Multiple Choice

Assume that total demand in a market is 1 and that customers are uniformly spread across the line segment from 0 to 1.There are only two companies in the market and there is no cost or service advantage held be either Firm 1 or Firm 2.Firm 1 locates at point a,and Firm 2 locates at point 1-b as shown in the figure.A customer chooses one firm or the other solely on the basis of distance travelled.

-The demand at Firm 2 is given by

• A)a + \(\frac { 1 + b - a } { 2 }\)
• B)a + \(\frac { 1 - b - a } { 2 }\)
• C) \(\frac { 1 + b - a } { 2 }\)
• D) \(\frac { 1 - b + a } { 2 }\)

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Definitions:

Perfectly Elastic

Perfectly elastic describes a situation where the quantity demanded or supplied changes infinitely in response to any change in price, represented by a horizontal demand or supply curve.

Industry Supply

The total output of a specific good or service produced by all firms in an industry at various price levels.

Industry Demand

The total demand for all the goods or services produced by a particular market sector.

Perfectly Elastic

Describes a situation where the quantity demanded or supplied responds infinitely or by unlimited quantity to any change in price, represented graphically as a horizontal line.