3. The dancing machine industry is a duopoly. The two firms, Chuckie B Corp. andGene Gene Dancing Machines, compete through Cournot quantity-settingcompetition. The demand curve for the industry is P = 100 – Q, where Q is the totalquantity produced by Chuckie B and Gene Gene. Currently, each firm has marginal costof $40 and no fixed cost. Find the equilibrium price, quantity produced by each firm, andthe profit of each firm. Now suppose the two firms were to form a cartel. What would bethe quantity produced by each firm in the cartel agreement? What would be the profit ofeach firm? Suppose that Chuckie B was considering cheating on the cartel agreementand it guesses that Gene Gene is going to stick to the cartel agreement. What is the profitmaximizing output of Chuckie B in that case? Is the cartel sustainable?

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2.- Each of two firms, firms 1 and 2, has a cost function C(q) = 0.5q; the demand function for the firms' output is Q = 1.5 - p, where Q is the total output. Firms compete in prices. That is, firms choose simultaneously what price they charge. Consumers will buy from the firm offering the lowest price. In case of tying, firms split equally the demand at the (common) price. The firm that charges the higher price sells nothing. (Bertrand model.) (a) Formally argue that there could be no equilibrium in prices other than p1 = p2 = 0.5 (b) Solve the same problem, but this time assuming that firms compete in quantities.Now, suppose that firm 1 has a capacity constraint of 1/3. That is, no matter what demand it gets, it can serve at most 1/3 units. Suppose that these units are served to the consumers who are willing to pay the most. Thus, even if it sets a price above that of firm 1, firm 2 may be able to sell some output. (c) Obtain the (residual) demand of firm 2 (as a function of its own…
Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. PRICE (Dollars per pound) 100 90 80 70 80 50 40 30 20 10 0 0 125 250 375 500 825 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Demand Because you know that competitive firms earn Supply (10 firms) True Supply (15 firms) If there were 10 firms in this market, the short-run equilibrium price of rhodium would be $ would . Therefore, in the long run, firms would False Supply (20 firms) per pound. From the graph, you can see that this means there will be ? per pound. At that price,…
Explain the difference in market power between perfectly competitive firms and monopolistically competitive firms. Which firms have more control over prices and/or output? Why? What are some industry examples of each type of market structure?
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21. In the industry, only two firms (Firm 1 and Firm 2) operate and they produce a homogenous good. They collude: they maximize their joint profit and split it equally between them. Firm I has the total cost of producing q; units of output given by the function TC(q)-8q1. The total cost of producing q: units of output for Firm 2 is TC(q)-q. Only integer quantities are allowed (no fractions). The market demand for the good is Q(P)-72-P, where Q is the quantity demanded and P is the unit price of the good. How many units of the good do cach firm produce in the equilibrium? A. Each firm produces 14 units. B. Firm I produces 32 units, and Firm 2 produces 2 units. C. Firm 1 produces 28 units, and Firm 2 produces 4 units. D. Each firm produces 16 units. E. None of the above
5.
Monopolistic Competition Consider the folowing graph, (graph 1) for the short run equilibrium for a monopolisticaily competitive firm producing printers for commercial operations. Graph1 $ Price per unit P1 ATC MC P2 Pa D3 D2 D3 Q2 Qu Q3 Quantity MR2 MR. The following information is given: D1 = $35,000- $15Q TC = $550,000+ $1,000Q+ $10Q? Answer the following and referring to the relevant elements of graph 1 above and show all workings. (a) Calculate price output and profit for the short run equilibrium (show all workings). (b) Calculate price, output and profit for the long run equilibrium (with and without product differentiation) (show all workings). (c) Is the market allocatively efficient in the short run or long run (why or why not?). (d) Is the market productively efficient in the short run or long run (why or why not?).
3. Reuben and Simeon are duopolists producing jeans in a differentiated goods market. The market demand for Reuben's jeans is y₁ = 75 − P₁ + P2, while the market demand for 1 1 Simeon's jeans is y₂ = 75 − P2 + ₂P₁. Reuben's cost function is C₁(y₁) = 75y₁ while Simeon's cost function is C₂ (y₂) = 75y2. a) Calculate the Bertrand equilibrium in this market. Indicate each firm's price, output level, and profits. (Answer: p₁ = 100 USD, y₁ = 25 units) b) Find prices and output levels that would maximize joint profits, and calculate the maximum joint profits. c) Draw a payoff matrix using the results from a) and b) and determine the Nash equilibrium.
Suppose that a monopolistically competitive restaurant is currently serving 250 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal. Instructions: Enter your answers as a whole number. a. What is this firm's profit or loss? $ b. Will there be entry or exit? (Click to select) Will this restaurant's demand curve shift left or right? (Click to select) In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. Suppose that the allocatively efficient output level in long-run equilibrium is 210 meals. c. What is the firm's profit? $ d. Is this firm's deadweight loss greater than or less than $90? (Click to select)
Compare and contrast the way that monopolistic competitors set price with the way that perfectly competitive firms set price. Also, compare and contrast the short and long run equilibrium in perfect competition and monopolistic competition.
The zero profit condition is assumed for the long run equilibrium under monopolistic competition all things equal. So explain why it is possible for firms under monopolistic competition to escape the zero profit conditions while it is much less likely under perfect competition?
The market for Banh Mi in Auckland CBD consists of 6 restaurants operating in monopolistic competition. Suppose that these firms face monthly fixed costs of $5,000 and marginal costs of $3. a) Draw the average cost and marginal cost curves for a representative firm. b) If the short run market price is $6 and each firm sells 2000 units per month, what will occur in the long run? Explain and show on a graph. c) Suppose that Banh Mi become more popular as a lunch option, and market demand increases. Explain the short run and long run effects on the market, including price, firm-level quantity and number of firms. Use graphs to explain your answer.

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