12- Suppose the market for tennis shoes has one dominant firm and five fringe firms. The market demand is Q = 200- 2P. The dominant firm has a constant marginal cost of 10. The fringe firms each have a marginal cost of MC = 10 + 5g. What is the dominant firm's demand curve? a) Qd = 200 - 2P b) Qd = 420 - 3P Qd 210-3P o) Qd = 200 - 7P

12- Suppose the market for tennis shoes has one dominant firm and five fringe firms. The market demand is Q = 200- 2P. The dominant firm has a constant marginal cost of 10. The fringe firms each have a marginal cost of MC = 10 + 5g. What is the dominant firm's demand curve? a) Qd = 200 - 2P b) Qd = 420 - 3P Qd 210-3P o) Qd = 200 - 7P

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the market demand for a homogeneous product is given by Q = a - bP, where a and b are positive constants. The product is supplied by a dominant firm with a constant marginal cost c > 0 and n competitive fringe firms, each of which has a cost function ci(qi) = (qi^2)/(2ki) for i = 1, ... , n, where ki > 0 is a parameter. Suppose the dominant firm moves first by setting a price P, followed by competitive fringe rms setting their quantities, taking the price as given. a). Compute the equilibrium price and quantity level for each firm. b). How does the presence of competitive fringe firms affect the equilibrium price, as compared to the monopoly price by the dominant firm?
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Problem 2. 1 Once again refer to the market for motherboards and assume there is only one firm that produces these delicious bundles. Market For Computer Motherboards Price $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 0 D 20 40 60 80 100 120 140 160 Quantity 180 200 220 240 A) If the cost function of this firm is C(Q)=- plot the marginal cost, marginal 2 revenue on the graph. Also derive the demand and inverse demand functions. What is the price at which the monopoly will choose to sell in this market.
2. Suppose the home country open up to free trade and a foreign competitor enters the market. Assume thatthe foreign firm has the same cost structure as the home firm (the monopoly from the previous question). The demand for its product is given by the inverse demand function: P = 120 −QD. The company’s costs are: T C = 20Q+ 200 and MC = $20A) Derive the best response function for each firm (h-home and f-foreign)B) Find each firms’ output, the home market price, and each firms’ profit from the home market3. Now, suppose that in addition to the home country opening up to free trade, the foreign country has alsoopened up to free trade. As a result, both firms sell their product in both markets.A) Find each firms’ overall output, market price in each market, and each firms’ overall profitB) Explain what effect free trade has (relative to no trade) on the firms and consumers
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3. Suppose there are two firms competing in a market. Both firms have the cost function c(x) =10x/2 while the demand function is given by x(p) = 100 – 0.1p. c. Suppose firm 1 decides its quantity first and firm 2 follows after observing x1. Find the profit maximizing quantity and price for this Stackelberg competition
QUESTION 2 Glyde Air Fresheners is the dominant firm in the solid room aromatizer industry, which has a total market demand given by Q = 80-2 P. Glyde has competition from a fringe of four small firms that produce where their individual marginal costs equal the market price. The fringe firms each have total costs given by TC; = 10 Q₁ + 2 Q2;. If Glyde's total costs are given by TCG = 100 + 6 QG, what are the total profits of the fringe firms? $32. $64. $96. $128. $160.
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A firm with market power can divide its sales into two submarkets, the demands and marginal revenues of which are shown in the following diagram. $ Price, marginal revenue, and marginal cost (dollars) 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0 5 10 MRA 15 MRB 20 Quantity 25 DA 30 35 MC = ATC DB 40 (a) How many quantities of output should the firm produce? 1 45 Q (b) How many quantities should be sold to market A? How many quantities should be sold to market B? What price should be charged in each market? (c) Calculate the price elasticities at the prices charged in each submarket. Do these price elasticities have the expected relative magnitudes? Explain. (d) What is the amount of profit generated by the firm?
8. Suppose there are two identical firms in an industry who compete by setting quantities. The output of firm 1 is denoted by q1 and that of firm 2 is denoted by q2. Each firm faces a constant marginal cost of 3. Let Q denote total output, 1.e. Qq1 +42. The inverse demand curve in the market is given by P-15-Q (d) Suppose firms interact repeatedly over an infinite horizon, and firms have a common discount factor & € (0,1). Specify a trigger strategy for each firm to sustain the collusive arrangement as an equilibrium outcome. Cal- culate the minimum value of & for which such a trigger strategy collusion as an equilibrium in the repeated interaction. ain