The Demand Function for an Oligopolistic Market Is Given by the Equation

question 43

Essay

The demand function for an oligopolistic market is given by the equation, Q = 180 - 4P, where Q is quantity demanded and P is price. The industry has one dominant firm whose marginal cost function is: MC = 12 + .1QD, and many small firms, with a total supply function: QS = 20 + P.
(a) Derive the demand equation for the dominant oligopoly firm.
(b) Determine the dominant oligopoly firm’s profit-maximizing output and price.
(c) Determine the total output of the small firms.

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Definitions:

SML Approach

It refers to the Security Market Line approach, a graphical representation of the Capital Asset Pricing Model (CAPM) that shows the relationship between expected return and beta (market risk).

Reward-to-Risk Ratio

A metric used in finance to compare the expected returns of an investment to the amount of risk undertaken to capture these returns.

Cost of Debt

The effective rate that a company pays on its current debt, including bonds and loans.

Yield to Maturity

The total return anticipated on a bond if the bond is held until its maturity date, factoring in its current market price, par value, coupon interest rate, and time to maturity.