2. Consider a market for a homogenous good with the following inverse demand function: P = 52 – 2Q where Qis total sold quantity on the market. (a) If there is only one firm serving the market and the firm's cost function is C(Q) = 4Q, what quantity will be sold on the market? What will be the market price? What is the firm's profits? Is the market outcome efficient? (b) Suddenly, there is a potential rival firm considering entering the market. It would produce the same good as the incumbent firm and would have an identical variable cost but has a fixed cost of entry, F = 100. The two firms would be faced with a problem of simultaneously deciding on how of the good to sell on the market (the inverse demand function is still the same). Derive both firms' best response functions and draw these in a diagram. Explain the Nash equilibrium in the diagram. (c) Following from (b), what would be the new equilibrium quantity sold in the market and what is the equilibrium market price? Would the potential entrant enter the market?

2. Consider a market for a homogenous good with the following inverse demand function: P = 52 – 2Q where Qis total sold quantity on the market. (a) If there is only one firm serving the market and the firm's cost function is C(Q) = 4Q, what quantity will be sold on the market? What will be the market price? What is the firm's profits? Is the market outcome efficient? (b) Suddenly, there is a potential rival firm considering entering the market. It would produce the same good as the incumbent firm and would have an identical variable cost but has a fixed cost of entry, F = 100. The two firms would be faced with a problem of simultaneously deciding on how of the good to sell on the market (the inverse demand function is still the same). Derive both firms' best response functions and draw these in a diagram. Explain the Nash equilibrium in the diagram. (c) Following from (b), what would be the new equilibrium quantity sold in the market and what is the equilibrium market price? Would the potential entrant enter the market?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

4. Consider a market where every firm and every potential entrant has the iden- tical cost function C(q) = 3q³-6q² +6q. (a) Find the firm's inverse supply function. (b) Suppose the market demand function is given by QP (P) = 20-2P. Find the long-run equilibrium price, quantity, and the number of firms. (c) Suppose the demand function suddenly becomes perfectly inelastic at quan- tity Q = 7. Find the long-run equilibrium price, quantity and the number of firms. (d) Suppose the demand becomes perfectly inelastic at quantity Q = 7, and the government decides to collect a per unit tax t = 4 from the producers for every unit of the good they sell. Find the long-run equilibrium price, quantity and the number of firms.
2. Consider a competitive market where there are two types of firms, Type A and Type B, with total cost functions TC(q) = 2+4q+q² TCB (q) = 8+4q+6q² (a) Derive the short-run supply curve for each firm type (b) What is the short-run market supply, if there are 6 Type A firms, and 12 Type B firms? What is total quantity produced when p=10? (d) How does your answer at (c) change if we consider long run supply rather than short run? Here, assume again that p=10 and that there are 6 Type A firms and 12 Type B firms.
Pete sells two different soups (chicken soup and beef soup) in two competitive markets. Suppose the firm's cost function is given by C = ½ q1^2 + ¼ q2^2 - 1/6 (q1)(q2) where q1 is the output of chicken soup and q2 is the output of beef soup. The price of beef soup is $3. a. Find the firm's supply curve for chicken soup. b. Find how the firm's supply of beef soup varies with the price of chicken soup Show work and explain
QUESTION 1 A bakery sells its cakes in two different neighbourhoods (Neighbourhood 1 and 2). Neighbourhood 1’s demand function is given by P1=50-0.5Q1. Meanwhile, the demand in Neighbourhood 2 is P2=20-0.25Q2 . The bakery total cost is C=[ 3Q]2/ 108 where Q=Q1+Q2. a) Suppose the bakery can price discriminate between the two neighbourhoods. Calculate the price and quantity for each of the neighbourhoods that maximises this bakery profit. What is the profit obtained from selling the cakes in Neighbourhood 1? Is it the same as the profit obtained from selling cakes in Neighbourhood 2? Justify your answer. b) Find the price elasticities of demand at the equilibrium prices and quantities.
4. A vertically integrated automobile company has an upstream engine division and a downstream assembly division. The demand for the company's cars is given by Q = 20-P. Each car requires one engine. The downstream division's total cost of assembling cars is TCD(Q) = 4Q. The upstream division's total cost of producing engines is TCv (Q) = Q². (a) Suppose that there is no outside market for engines. What is the price and quantity of cars produced by the company? (b) Suppose that there is no outside market for engines. What should be the transfer price for engines? [Hint: the transfer price of an engine should equal the marginal cost of engine production at the optimal quantity.] (c) Suppose that there is a competitive outside market in which the price of an engine is 12. What is the price and quantity of cars produced by the company? (d) Suppose that there is a competitive outside market in which the price of an engine is 12. What is the quantity of engines that the company buys or…
1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors. (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $20, $12, $8, $4, and $2 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $8, $12, $20, $32, and $44 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Price Quantity Demanded Quantity Supplied ($ per widget) (widgets) (widgets) $2 $4 $8 $12 $20 $32 $44 In this market, the equilibrium price will be______ per widget, and the equilibrium quantity will be ___ (#) widgets.
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $26, $14, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $14, $26, $34, and $42 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Price Quantity Demanded Quantity Supplied ($ per widget) (widgets) (widgets) $3 $5 $10 $14 $26 $34 $42 In this market, the equilibrium price will be per widget, and the equilibrium quantity will be widgets.
PS4.2 (a) What Optimal Level of Output (q*) will a Firm Produce given the following? MC(q) = 3 + 2q Price (P) = $9 MC → Marginal Cost q→ Quantity (b) What is a Firm's Producer Surplus assuming the following? Area of Triangle = 1/2* Base * Height (c) Will a Firm be Earning a Positive, Negative, or Zero Profit in the Short-Run given the following? AVC (q) =3+q FC = $3 AVC → Average Variable Cost FC Fixed Cost
2. The demand curve facing a competitive firm The following graph illustrates the market for large moving trucks in Eugene, OR, during Oregon's fall move-in week. PRICE (Dollars per large truck) 400 360 320 Demand 280 240 200 8 160 120 80 40 0 1 3 4 5 6 7 8 QUANTITY (Hundreds of large trucks) 2 Supply + 9 10 (2)
3) Assume that s = 3.(a) Find firm B’s profit function under the subsidy. (No work required.)(b) Find firm B’s best response function.(You may do this directly or by setting s to zero in yourexpressions from (1b).(c) Why don’t I need to ask you to solve for A’s best response?(d) Solve for the equilibrium outputs (q*A, q*b ).(e) Solve for the equilibrium price.(f) Solve for firm B profits. Can you please answer the last 3 questions
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $20, $10, $5, and $3 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $20, $30, $38, and $44 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Quantity Demanded Quantity Supplied (widgets) Price ($ per widget) $3 $5 $10 $20 $30 $38 $44 (widgets)