![EBK ESSENTIALS OF ECONOMICS](https://www.bartleby.com/isbn_cover_images/8220103647380/8220103647380_largeCoverImage.jpg)
EBK ESSENTIALS OF ECONOMICS
4th Edition
ISBN: 8220103647380
Author: KRUGMAN
Publisher: MAC HIGHER
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Question
Chapter 9, Problem 1P
To determine
Concept Introduction:
Price Effect: After a change in price, each additional unit was sold at a changed price. This will result in an increase or decrease in revenue of the producer. This is known as the price effect on the revenue.
Quantity effect: After an increase or decrease in price, fewer units are sold which results in lower revenue. This is known as the quantity effect on the revenue.
Expert Solution & Answer
![Check Mark](/static/check-mark.png)
Explanation of Solution
a. Price and Quantity effect for BASF.
- From the table, it is clear that if BASF will produce 10 more tons, then the price will fall from $4 to $3 per ton. So, with the fall in price BASF has to reduce price of each of the 40 tons.
- Price effect will be:
![EBK ESSENTIALS OF ECONOMICS, Chapter 9, Problem 1P , additional homework tip 1](https://content.bartleby.com/tbms-images/9781464143847/Chapter-14/images/html_43847-14-2p_1.png)
- Quality effect will be the price at which additional 10 tons were sold:
![EBK ESSENTIALS OF ECONOMICS, Chapter 9, Problem 1P , additional homework tip 2](https://content.bartleby.com/tbms-images/9781464143847/Chapter-14/images/html_43847-14-2p_2.png)
- As the marginal cost is zero, additional production will not incur any extra cost on BASF, but it will incur either loss or revenue due to an increase in production; therefore it has no incentive to produce 10 tons of an additional unit.
Conclusion:
Thus, the price effect is and the quantity effect is $30.
b. Price and Quantity effect for BASF when Roche enters the market:
- If BASF wants to produce 10 more tons then the price will fall from $4 to $3 per ton.
- Due to the duopoly type of market, with the fall in price, BASF must reduce the price on each of the 20 tons only.
- Price effect will be:
![EBK ESSENTIALS OF ECONOMICS, Chapter 9, Problem 1P , additional homework tip 4](https://content.bartleby.com/tbms-images/9781464143847/Chapter-14/images/html_43847-14-2p_4.png)
- Quality effect will be the price at which an additional 10 tons were sold:
![EBK ESSENTIALS OF ECONOMICS, Chapter 9, Problem 1P , additional homework tip 5](https://content.bartleby.com/tbms-images/9781464143847/Chapter-14/images/html_43847-14-2p_5.png)
- As the marginal cost is zero, the additional production will not incur any additional cost on BASF. Revenue will be increased by $10 with an increase in production.
Conclusion:
Thus, the price effect is and the quantity effect is $30.
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