3. Antitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that two American investment banks negotiate a merger agreement because a financial crisis threatens to bankrupt both firms. This merger could potentially be stopped by a lawsuit brought by which of the following American institutions? O The Commerce Department O The Interior Department O The Defense Department O The Justice Department

3. Antitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that two American investment banks negotiate a merger agreement because a financial crisis threatens to bankrupt both firms. This merger could potentially be stopped by a lawsuit brought by which of the following American institutions? O The Commerce Department O The Interior Department O The Defense Department O The Justice Department

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4) Which of the following companies is least likely to operate in an oligopoly? Burger King, which sells fast food Frontier, which provides Internet services AHF pharmacy Verizon, which provides cell phone coverage
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 18 percent, 24 percent, 20 percent, 11 percent, 10 percent, 9 percent, and 8 percent. The four-firm concentration ratio for the hamburger industry in this town is percent. (Enter your response as a whole number.) The Herfindahl index for the hamburger industry in this town is (Enter your response as a whole number.) Suppose the top three sellers combined to form a single firm. The four-firm concentration ratio would be percent. (Enter your response as a whole number.) Suppose the top three sellers combined to form a single firm. The Herfindahl index would be (Enter your response as a whole number.)
8. Two firms, the only firms in the market, sell the same product and have the same marginal cost. They realise they would be better off if they didn't compete with each other. They enter an alternating offers bargaining game to decide how they will divide the monopoly profit, n. They have three periods to come to an agreement. If no agreement is reached after three periods, the firms will compete simultaneously in prices. The firms toss a coin to decide who makes the first offer in the bargaining game. Firm 1 wins and decides to go first. Each firm has a discount factor o. a) Draw the game tree. b) What is the subgame perfect equilibrium when 8 = 0.5? c) What is the equilibrium payoff for each firm? d) Was Firm 1 wise to opt to make the first offer? Explain your answer. %3D
4. Imagine a market with demand P = 420 – Q in each period. Two firms are thinking about colluding. They each have cost C(Qi) = 60Qi. If they cooperate and behave as a monopoly, then they have a marginal revenue curve, MRm = 420 – 2Q, and a marginal cost curve, MCm = 60. If they are in a cartel, then the firms will split the monopoly production and profits. If they compete, then they face MRi = 420 – 2Qi – Q-I and MCi = 60. a. If the firms stick to their agreement (cooperate), how much per-period profit do they each make? b. If they are not able to maintain their agreement (compete), what is their per-period profit? c. If one firm cheats on their agreement (deviate), how much does each firm make? Be sure to specify both the profit for the cheater and the firm cheated-on. d. Suppose the firms assume that their interaction will last forever (r = 1) and they share the common discount value R. What is the lowest value of R such that both firms are willing to continue with the cartel…
1. What do we mean by market power in economics? What are some ways firms can attain market power? How can we, as economists, know when a firm has "too much" market power? Give an example of a firm you think has a lot of market power.2. Chapter 3 is all about game theory. Imagine you are in charge of pricing at a firm that has 20% market share in an industry where the leading firm has 50% market share. Imagine that the leader increases prices on their products. How do you think you would react? Why?
Discuss how oligopoly market structure can help explain some of the decision-making processes by firms?
3. Breakdown of a cartel agreement Consider a town in which only two residents, Gregor and Haidy, own wells that produce water safe for drinking. Gregor and Haidy can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) 4.80 4.40 4.00 3.60 3.20 2.80 2.40 2.00 1.60 1.20 0.80 0.40 0 Quantity Demanded (Gallons of water) 0 35 70 105 140 175 210 245 280 315 350 385 420 Total Revenue (Dollars) 0 $154.00 $280.00 $378.00 $448.00 $490.00 $504.00 $490.00 $448.00 $378.00 $280.00 $154.00 0 Suppose Gregor and Haidy form a cartel and behave as a monopolist. The profit-maximizing price is $ output is S per gallon, and the total gallons. As part of their cartel agreement, Gregor and Haidy agree to split production equally. Therefore, Gregor's profit is , and Haidy's profit is $ Suppose that Gregor and Haidy have been successfully operating as a cartel. They each charge the…
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2. Consider the following game: Soapy Inc. and Suddies Inc. are the only producers of soap powder. They collude and agree to share the market equally. If neither firm cheats on the agreement, each makes $1 million profit. If either firm cheats, the cheat makes a profit of $1.5 million, while the complier incurs a loss of $0.5 million. If both cheat, they break even. Neither firm can monitor the other's actions. a) Construct the payoff matrix. b) What is the dominant strategy? c) What is the nash equilibrium for this game?
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11. Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of P = 140 – 0.5Q, and cost functions of CA = 20QA and Cg = 20QB respectively. a. Find the Cournot-Nash equilibrium and profit for each firm. b. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first? c. If the firms were able to collude, how much additional profit could they earn if they switch from simple single pricing to perfect price discrimination? d. Graph and label equilibria on the inverse demand.