In a small Kansas town, there are two kinds of gasoline consumers: 100 Buick owners and 50 Dodge owners.Each Buick owner has the demand function D_b(p)= max{0, 20 - 5p} and each Dodge owner has the demand function D_d = max{0, 15- 3p}.In this town, the market demand curve has A)no kinks but gets steeper as price rises. B)no kinks but gets flatter as price rises. C)constant slope since individual demand curves have constant slope. D)a kink at p = 4 and another at p = 5. E)a kink at p = 35/8.

Question

Quizplus · Accepted Answer

Both individual demand curves have kinks at some price levels, so the market demand curve will also have kinks at the same price levels. Using the demand functions, we can solve for the equilibrium price levels where the kinks occur:
For Buick owners: 
5p - 100 = 20 
p = 24/5 = 4.8 
For Dodge owners: 
3p - 50 = 15 
p = 35/3 = 11.67 
Therefore, the market demand curve will have a kink at p = 4.8 and another at p = 11.67, making choice D the correct answer.

In a Small Kansas Town, There Are Two Kinds of Gasoline