3. Two stores are located side by side. They attract customers to each other and to themselves by advertising. The profit functions of the two stores are (45+ x2)x₁-2x for store 1 and (90+ x1)x2 - 2x for store 2, where x₁ and x2 are total advertising expenditures by stores 1 and 2, respectively. If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising? Call this amount A₁. How much would store 1 spend on advertising if it and store 2 act as one firm that maximizes profit? Call this amount AM- 3.1 Calculate A

3. Two stores are located side by side. They attract customers to each other and to themselves by advertising. The profit functions of the two stores are (45+ x2)x₁-2x for store 1 and (90+ x1)x2 - 2x for store 2, where x₁ and x2 are total advertising expenditures by stores 1 and 2, respectively. If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising? Call this amount A₁. How much would store 1 spend on advertising if it and store 2 act as one firm that maximizes profit? Call this amount AM- 3.1 Calculate A

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 two companies in an industry advertise where the marginal benefit of advertising expenditure is 0. what this means is, if each company increased their advertising by $50 million, both would see their profits fall by $50 million but if they both cut their advertising by $50 million they would both see their profits go up by $50 million. However if one increased advertising by $50 million and the other decreased advertising $50 million, the firm increasing their advertising would increase their profits by $100 million and the firm cutting their advertising expenditure would see the profit decrease by $100 million. What is the optimal outcome? Does each firm have a dominant strategy? If so, will following their dominant strategy result in the optimal outcome?
. What is the Nash equilibrium in this advertising war?a) Coke advertises; Pepsi does not advertise b) Pepsi advertises; Coke does not advertise c) neither of them advertises d) both of them advertise Explain the reasons for your answer? Was any other equilibrium position possible? advertise do not advertise pepsi-advertise coke profit=$50B coke profit =$20B PEPSI profit =$50B pepsi profit =$100B do not advertise coke profit =$100B coke profit =$80B pepsi profit =$20B PEPSI PROFIT =$80 B
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Suppose the market for cereal is monopolistically competitive and in long-run equilibrium. The demand (and marginal revenue) for a firm in this industry is illustrated in the graph to the right, along with that firm's average total cost and marginal cost of producing its brand of cereal. Compared to perfectly competitive markets in the long-run, monopolistically competitive markets, such as that for cereal, allocatively efficient because they produce excess capacity. For example, according of thousand boxes. are are not onopolistically competitive firm has excess capacity esponse using an integer.) 150 135- 120- 105- 90- 75- 60- 45- 30- 15- Price and cost (dollars per box) MC ATC MR D 10 20 30 40 50 60 70 80 90 100 Quantity of cereal (per week in 1000s) Q Q
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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 $13 per meal. Instructions: Enter your answers as whole numbers. What is the size of this firm's profit or loss? $0 Will there be entry or exit? (Click to select) As a result, will this restaurant's demand curve shift left or right? (Click to select) Assume that the allocatively efficient output level in long-run equilibrium is 210 meals. 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 $9. What is the size of the firm's profit? $[ Suppose that the allocatively efficient output level in long-run equilibrium is 210 meals. 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 $9. Is the deadweight loss for this firm greater…
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SUB-SECTION B2 13 Electra and Luminux are the only two firms who provide electricity in a local market as a Cournot duopoly. The electricity provided by the two firms is identical and consumers are indifferent about which firm they will purchase electricity from. The market inverse demand for electricity is P = 100 - 2Q, where is the aggregate quantity of electricity produced by the two firms, qe qL. Electra has a marginal cost of 12, while Luminux has a marginal cost of 20. Assume that neither firm has any fixed costs. (a) Determine each firm's reaction curve and graph it. How much electricity will each firm produce in a Cournot equilib- rium? (c) What will the market price for electricity be? How much profit does each firm make? (e) Suppose now that the two firms move sequentially with one of them acting as a Stackelberg leader. Do you expect the outcome to the closer to perfect competition when Electra, or when Luminux, moves first? Explain your answer.
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