An incumbent firm has a cost function C = 100 + 1.5 q2, so its MC = 3 q. An upstart firm has entered the market with a cost function C = 100 + 75 q. Suppose the incumbent firm sets a price of 74 and meets all demand at that price. Market demand is given by P = 100 - Q. Does the incumbent’s behavior violate the Areeda-Turner rule?

An incumbent firm has a cost function C = 100 + 1.5 q2, so its MC = 3 q. An upstart firm has entered the market with a cost function C = 100 + 75 q. Suppose the incumbent firm sets a price of 74 and meets all demand at that price. Market demand is given by P = 100 - Q. Does the incumbent’s behavior violate the Areeda-Turner rule?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.6IP

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