4) Suppose there are two firms that compete in prices, say firms 1 and 2, but that thefirms produce differentiated products. Suppose that the demand for firm 1 is9₁(P₁, P2) = 10 - 2p₁ + P₂ and the demand for firm 2 is q2 (P2, P₁) = 10 - 2p₂ + P₁.Also, assume that firm 1 has a constant marginal cost of c₁ = 2 and firm 2 has a constantmarginal cost of c₂ = 3.a) What are the reaction functions for both firms?Solve for the Bertrand equilibrium in prices.b)c) Now, suppose firms 1 and 2 agree to merge. However, under the merger onlyfirm 1 will operate and firms 1 and 2 will split the resulting profits equally. Willboth firms agree to such a plan or do they prefer the Bertrand outcome?

Given information q1=10-2P1+P2 q2=10-2P2+p1 MC1=2 MC2=3

Answered: 4) Suppose there are two firms that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7. Suppose you are employed at a monopolistic company as a research (pricing) economist and you are deriving the behavior of two markets based on demand curves given by: D1(P1) = 50 – P1 D2(P2) = 50 – 2p2 Assume that the marginal cost is constant at $8 a unit. (a) If it can price discriminate, what price should it charge in each market in order to maximize profits? (b) If it can't price discriminate, what price should it charge?
Q2: Firms A and B are two firms supplying products in two separate differentiated goods markets. Equations (1) and (2) give the total cost functions of the two firms: - Firm A: TC - 2Q -(1) - Firm B TC - 10 + 2Q - -(2) Each firm has the ability to produce a maximum quantity of 80,000 units in ten bateches of 8,000. Use the information given about firms A and B and appropriate diagrams/figures to explain how the equilibrium for both firms will change if a rival company increases its prices.
Suppose that the market consists of 6 identical firms , that the market demand curve is P=200-2Q and that each firm's marginal cost is 32. The cournot equilibrium quantity per firm is q=_____________________ and the equilibrium quantity in the market is Q=______________________. The market price is P=$______________ per unit.
8. Suppose there are two identical firms in an industry who compete by setting quantities. The output of firm 1 is denoted by q1 and that of firm 2 is denoted by q2. Each firm faces a constant marginal cost of 3. Let Q denote total output, 1.e. Qq1 +42. The inverse demand curve in the market is given by P-15-Q (d) Suppose firms interact repeatedly over an infinite horizon, and firms have a common discount factor & € (0,1). Specify a trigger strategy for each firm to sustain the collusive arrangement as an equilibrium outcome. Cal- culate the minimum value of & for which such a trigger strategy collusion as an equilibrium in the repeated interaction. ain
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Question 3 The inverse market demand for fax paper is given by P=100-Q. There are two firms who produce fax paper. Firm 1 has al cost of production of C₁= 15*Q₁ and firm 2 has a cost of production of C₂=20*Q₂. 1) Suppose firm 1 and firm 2 compute simultaneously in quantities. What are the Cournot quantities and prices? What are the profits of firm 1 and 2? 2) Suppose firm 1 and firm 2 compete simultaneously in prices. What are the Bertrand quantities and prices? What are the profits of firm 1 and 2? 3) Suppose that firm play a Stackelberg game. First firm 1 sets the quantity in t=1, then, knowing which quantity firm 1 has set, firm 2 chooses the quantity in t=2. What are the Stackelberg quantities and prices? What are the profits od firm 1 and 2? Compared to part a) which firm benefits and which firm loses?
Two firms (called firm 1 and firm 2) are the only sellers of a good for which the demand equation is Here, q is the total quantity of the good demanded and p is the price of the good measured in dollars. Neither firm has any fixed costs, and each firm’s marginal cost of producing a unit of goods is $2. Imagine that each firm produces some quantity of goods, and that these goods are sold to consumers at the highest price at which all of the goods can be sold. A Cournot equilibrium in this environment is a pair of outputs (q1, q2) such that, when firm 1 produces q1 units of goods and firm 2 produces q2 units of goods, neither firm can raise its profits by unilaterally changing its output. Find the Cournot equilibrium. Determine whether the price at which the goods are sold exceeds marginal cost.
Suppose the iceberg lettuce industry is a Cournot duopoly with two firms: Xtra Leafy (a) and Yummy Farms (y). Xtra Leafy produces q units of output and Yummy Farms produces qy units of output. Aggregate market output is Q = x + y. The (inverse) market demand schedule is: p = 176 - 2Q Both firms have identical cost structures: MC = MC₁ = ATC₂ = ATC₁ = $12 Find Xtra Leafy's Cournot reaction function of the form: 9x = a + bay Where "a" is the reaction function's intercept and "b" is its slope. Note: Please review the formatting instructions above. If any value is negative, be sure to include its negative sign. a. a= b. b = Hint: One of your answers will be negative. Think about why.

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