Please solve parts (c) and (d) 14. Cournot Oligopoly Problem 2 - heterogeneous costs duopolySuppose the following:• Inverse demand is given by2 firms compete in the market.• Firm 1 has constant marginal cost of c₁ and fixed costs of F₁.• Firm 2 has constant marginal cost c₂ and fixed cost F₂.-(a) Solve for equilibrium quantities, prices, and firm profits, assuming that both firms willfind it profitable to produce.(b) How, if at all, does firm 1's profit vary with c₂?(c) Why?(d) Now suppose C14 and C₂=P = 24 - 4Q2.2i. Compute the generalized Lerner Index for each firm in equilibrium.ii. Which firm has the higher markup?iii. Why?iv. What does that mean?(e) Now suppose that both firms are potential entrants into a new market that is currentlynot served by anyone. The equilibrium values you have computed represent the outcomeshould both firms choose to enter the market. Continue to assume that c₁ = 4 andC2 == 2. Suppose that fixed costs are the only costs of entry into the market.i. For what values of F₁ will firm 1 choose NOT to enter?ii. For what values of F2 will firm 2 choose NOT to enter?iii. What would each firm's profit be if it were the only (monopoly) supplier to themarket?F2==iv. Finally, suppose F₁0, but imagine that we allow firms to pay money to"construct" entry barriers for their opponents. For example, firm 1 could pay 1 toadd 1 to F2 and vice versa. In this imaginary world, which firm(s) would be willingto pay enough to keep the other from entering?

Given information P=24-4Q Two firms are available in the market. MC1=C1 fixed cost=F1 MC2=C2 and…

14. Cournot Oligopoly Problem 2 - heterogeneous costs duopoly Suppose the following: • Inverse demand is given by • 2 firms compete in the market. Finm ho al goat of P = 24 - 4Q 2 and fired coats of D

14. Cournot Oligopoly Problem 2 - heterogeneous costs duopoly Suppose the following: • Inverse demand is given by • 2 firms compete in the market. Finm ho al goat of P = 24 - 4Q 2 and fired coats of D

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

Please solve parts (c) and (d)

14. Cournot Oligopoly Problem 2 - heterogeneous costs duopoly
Suppose the following:
• Inverse demand is given by
2 firms compete in the market.
• Firm 1 has constant marginal cost of c₁ and fixed costs of F₁.
• Firm 2 has constant marginal cost c₂ and fixed cost F₂.
-
(a) Solve for equilibrium quantities, prices, and firm profits, assuming that both firms will
find it profitable to produce.
(b) How, if at all, does firm 1's profit vary with c₂?
(c) Why?
(d) Now suppose C1
4 and C₂
=
P = 24 - 4Q
2.
2
i. Compute the generalized Lerner Index for each firm in equilibrium.
ii. Which firm has the higher markup?
iii. Why?
iv. What does that mean?
(e) Now suppose that both firms are potential entrants into a new market that is currently
not served by anyone. The equilibrium values you have computed represent the outcome
should both firms choose to enter the market. Continue to assume that c₁ = 4 and
C2 =
= 2. Suppose that fixed costs are the only costs of entry into the market.
i. For what values of F₁ will firm 1 choose NOT to enter?
ii. For what values of F2 will firm 2 choose NOT to enter?
iii. What would each firm's profit be if it were the only (monopoly) supplier to the
market?
F2
=
=
iv. Finally, suppose F₁
0, but imagine that we allow firms to pay money to
"construct" entry barriers for their opponents. For example, firm 1 could pay 1 to
add 1 to F2 and vice versa. In this imaginary world, which firm(s) would be willing
to pay enough to keep the other from entering?

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