1 answer

Consider a market with network externalities, where demand is Q-100 - 1P. Let price initially be...

Question:

Consider a market with network externalities, where demand is Q-100 - 1P. Let price initially be $40, where current demand wi
Consider a market with network externalities, where demand is Q-100 - 1P. Let price initially be $40, where current demand without network externalities would be Q. =80.00 -0.50P. Suppose the price falls to $30, where demand without network externalities would be Q2 - 85.00 -0.50P. With network externalities, the price change increases the quantity demanded by 10 units. (Enter your response using an integer.) Without externalities, the price change would have increased the quantity demanded by units.

Answers

Answer : Without externalities :

When P = $40,

Q1 = 80 - (0.50 * 40) = 60

When P = $30,

Q2 = 85 - (0.50 * 30) = 70

Changes in quantity demanded without externality = Q2 - Q1 = 70 - 60 = 10.

Therefore, due to price change without externality the quantity demanded is increased by 10 units.

.

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