For a Good with Network Externalities, Draw a Diagram Showing

question 12

Essay

For a good with network externalities, draw a diagram showing the relation between the number of units sold and the willingness to pay of demanders.Find a price at which there are two stable and one unstable equilibrium quantities.Label these equilibria and explain why the unstable equilibrium is unstable.

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Definitions:

Equity Method

An accounting technique used to record investments in associate companies, reflecting the investor's proportional share of the investee's net income or losses.

Cost Method

An accounting method in which the investment in common stock is recorded at cost, and revenue is recognized only when cash dividends are received.

Debt Securities

Debt securities are financial instruments representing a loan made by an investor to a borrower, typically offering regular interest payments and the return of principal at maturity.

Stock Securities

Financial instruments that represent ownership shares in a corporation, entitling the holder to a portion of its assets and earnings.