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 = 28,700 - 75P, where Q_m is units per month.
It expects small firms in the industry to supply output according to the following function: Q_s = 1,700 + 25P. What quantity and price will the large firm set?

Question

Quizplus · Accepted Answer

To find the quantity and price the large firm will set, we first need to determine the total market demand and then subtract the quantity supplied by the small firms. The market demand is given by $Q_D = 28,700 - 75P$, and the supply by small firms is $Q_S = 1,700 + 25P$. The large firm's output will be the difference between total market demand and the supply by small firms: $Q_L = Q_D - Q_S$.First, we combine the equations:$$Q_L = (28,700 - 75P) - (1,700 + 25P)$$$$Q_L = 27,000 - 100P$$However, without further information or calculations provided in the options, we cannot directly solve for $Q$ and $P$ (quantity and price) that the large firm will set. The correct answer choice is based on the realization that none of the provided options directly follow from the information given without additional steps or missing information. Therefore, the correct answer is E) None of the above, as we cannot accurately determine the quantity and price without further calculations or information.

A Large Firm That Is a Price Leader in an Industry