Suppose the inverse market demand is given by P = 150 − 2Q.If the incumbent continues to produce 10 units of output,which of the following equations best summarizes the potential entrant's residual demand curve?
A) P = 130 − 2Q
B) P = 150 − 4Q
C) P = 75 − 0.5Q
D) P = 130 − Q

Question

Quizplus · Accepted Answer

The incumbent produces 10 units, so Q_incumbent = 10. The inverse market demand is P = 150 - 2Q. To find the residual demand for the potential entrant, we substitute Q_incumbent into the market demand, getting P = 150 - 2*(10 + Q_entrant) = 150 - 20 - 2Q_entrant = 130 - 2Q_entrant. Thus, the correct equation is P = 130 - 2Q, which matches option A.

Suppose the Inverse Market Demand Is Given by P =