Because demand (and marginal revenue) have fallen the new profit maximizing price/output combination has fallen as well to P2 and Q2.

    This is the same qualitative result we found in our study of simple supply and demand, a reduction in demand leads to a reduction in both price and output. However we have to investigate the effects on profit to determine if this is a long run equilibrium.

Copyright © 1995-2004, Inc. - All Rights Reserved