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Four firms have roughly equal shares of the market for farm-raised catfish. The price elasticity of demand for the market as a whole is estimated at 1.5.
a. If all firms raised their prices by 5 percent, by how much would total demand fall?
b. What is the price elasticity if a single firm raises its price (with other firms' prices unchanged? Hint: Use the expression for elasticity in equation 3.8b, EP (dQ/dP)(P/Q), and note that the individual firm's output Q1 is only one-quarter as large as total output Q.
c. , what is your forecast for tSuppose that the quantity supplied by the four firms is forecast to increase by 9 percent. Assuming that the demand curve for catfish is not expected to changehe change in market price (i.e., what percentage price drop will be needed to absorb the increased supply)?
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