Suppose the inverse market demand is given by P = 20 − Q.If the incumbent continues to produce eight units of output,which of the following equations best summarizes the potential entrant's residual demand curve?
A) P = 12 − Q
B) P = 8 − Q
C) P = 20 − 12Q
D) P = 12 − 8Q

Question

Quizplus · Accepted Answer

The incumbent produces 8 units, so the total quantity Q in the market demand equation P = 20 - Q becomes Q + 8 when considering the entrant's production. Therefore, for the entrant, the price P they face is based on their quantity Q plus the incumbent's 8 units. Substituting Q + 8 for Q in the original demand equation gives P = 20 - (Q + 8), which simplifies to P = 12 - Q. This represents the residual demand curve the entrant faces, taking into account the incumbent's production.

Suppose the Inverse Market Demand Is Given by P =