Question

The kinked-demand schedule that an oligopolist believes confronts the firm is given in the table below. Compute the oligopolist’s total revenue at each of the nine prices, and enter these figures in the table. Also compute marginal revenue for each unit between the nine prices and enter these figures in the table.

Price	Quantity demanded	Total revenue	Marginal revenue per unit
$17.40	150	$_____
16.80	300	_____	$_____
16.20	450	_____	_____
15.60	600	_____	_____
15.00	750	_____	_____
14.40	792	_____	_____
13.80	837	_____	_____
13.20	864	_____	_____
12.60	900	_____	_____

Instructions: Enter all dollar values to two decimal places.

(a) Calculate Total Revenue and Marginal Revenue Product.

Total Revenue: $

Marginal Revenue: $     ---       

(b) Where is the "kink" in the demand curve in terms of price?

      Between $

and $

(c) What is the current selling price at that kink and how much output will be demanded?

     Price: $

     Output Level:

units

(d) What is the range of Marginal Costs that will keep the price set at the kink?
     Between $

and $

Answer 1

a. refer table.

b. Kink is in between price : $15 and $ 14.4(Marginal revenue after $15 price drops significantly as this part is inelastic in demand)

c.At kink selling price is $15 and quantity is 750

d. It is between 14.4 $ and $15.00 because , MC1 is the upper limit and MC2 is the lower limit of marginal costs that are consistent with producing output Q1 and selling this at price P1, by use of the MC = MR profit-maximising rule. This is the result of the broken portion of the MR curve.