4. A model of network externalities. Suppose that there are 50 potential consumers in the market for a new technology that exhibits network effects. There is a uniform distribution of consumers with individual valuations, v, ranging from $1, $2,..., $50. Consumer valuation from consuming the technology is given by vN, where N is the number of consumers adopting the technology. Consumers with purchase the product as long as their valuation is greater or equal to the price, so that the marginal consumer has a valuation such that p-yN. The number of consumers adopting the technology is given by the number of people with valuation greater than y, i.e. N=50-v. a) Using the information above, derive the relationship between the price of the product and the number of consumers adopting the product, N. Characterize this relationship - does it reflect a typical market demand curve? b) If the price for the product is $600, find the three equilibrium number of adopters in the market.

4. A model of network externalities. Suppose that there are 50 potential consumers in the market for a new technology that exhibits network effects. There is a uniform distribution of consumers with individual valuations, v, ranging from $1, $2,..., $50. Consumer valuation from consuming the technology is given by vN, where N is the number of consumers adopting the technology. Consumers with purchase the product as long as their valuation is greater or equal to the price, so that the marginal consumer has a valuation such that p-yN. The number of consumers adopting the technology is given by the number of people with valuation greater than y, i.e. N=50-v. a) Using the information above, derive the relationship between the price of the product and the number of consumers adopting the product, N. Characterize this relationship - does it reflect a typical market demand curve? b) If the price for the product is $600, find the three equilibrium number of adopters in the market.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter6: Consumer Choices

Section: Chapter Questions

Problem 1SCQ: Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can...

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