Question

Homework: Assignment 3 Save Score: 0.25 of 1 pt 4 of 10 (10 complete) HW Score: 80%, 8 of 10 pts Concept Question 5.4 Question Help Consider a market with network externalities, where demand is Q 100 1P. Let price initially be $40, where current demand without network externalities would be Q1 80.00-0.50P Suppose the price falls to $30, where demand without network externalities would be Q2 =85.00 0.50P With network externalities, the price change increases the quantity demanded by 10 units. (Enter your response using an integer.) Without externalities, the price change would have increased the quantity demanded by units. Enter your answer in the answer box and then click Check Answer.

Answer 1

Answer : Without network externalities  

At initial price level $40 the demand is, Q1 = 80 - 0.50P. So, at $40 the quantity demanded is,

Q1 = 80 - (0.50 * 40)

=> Q1 = 60

When price falls to $30 then the demand is, Q2 = 85 - 0.50P. So, at $30 price level the quantity demanded is,

Q2 = 85 - (0.50 * 30)

=> Q2 = 70

So, without externalities due to changes in price level the quantity demanded is increased by (70 - 60) = 10 units.