A large firm that is a price leader in an industry characterized also by many small competing firms estimates that the market demand for its product to be as follows: Q_m = 40,700 - 100P, where Q_m is units per month.
It expects small firms in the industry to supply output according to the following function: Q_s = 700 + 25P.
The quantity that the large firm will sell is 7750.

Question

Quizplus · Accepted Answer

The quantity the large firm will sell is determined by the total market demand minus the quantity supplied by the small firms. First, we need to find the equilibrium price by setting the total market demand equal to the total quantity supplied (which is the sum of the quantity supplied by the large firm and the small firms). However, without doing the specific calculations here, the provided statement does not give enough information to directly conclude that the quantity the large firm will sell is 7750 units. The actual quantity would depend on solving for the equilibrium price first and then determining the large firm's contribution to meeting the market demand based on that price.

A Large Firm That Is a Price Leader in an Industry