Consider the cost function
C(Q) = 400 + 5Q2
for RussCo to produce its new Phone. Using that cost function for the Phone, determine the profit-maximizing output, price and profit (or loss) for the RussCo Phone, and discuss its long-run implications, under three alternative scenarios:
a. RussCo Phone is a perfect substitute with a similar product offered by Apple, Samsung and several other Phones that have similar cost functions and that currently sell for $400 each.
b. RussCo Phone has no substitutes and so is a monopolist, and the demand for the RussCo Phone is expected to forever be Q = 22 – (1/6)P – note you use the earlier listed cost function.
c. RussCo Phone currently has no substitutes, and currently the demand for the RussCo Phone is Q = 80 – (1/5)P, but RussCo anticipates other firms can develop close substitutes in the future. – note you use the earlier listed cost function.
A.since the product has perfect substitutes,it means that it is a competitive firm.Price of the product and substitute will be same.In the long run,there would be 0 profits.Therefore,at equilibrium:P=MC.
B.No seller means monopoly.At equilibrium,MR=MC.
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