5- a) There are 3 firms competing over quantities. The market share of firm 1 is 0.3 and its marginal cost is 1. If the price elasticity of demand is -3, what is the equilibrium price? b) If the share of the other two firms are 0.1 & 0.6 respectively calculate the Herfindahl index.
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- 9. Two firms compete by choosing price. Their demand functions are q1 = 20 – pı + P2 and q2 = 20 – P2 + P1. Marginal costs are zero a) Suppose the two firms set their prices at the same time. Find the resulting NE. What 2 price will each firm charge, how much will it sell, and what will its profit be? b) Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will it sell, and what will its profit be? c) Suppose there are three ways this game can be played: both firms set price at the same time; firm 1 sets its price first; firm 2 sets its price first. If firm 1 can choose among these options, which would it prefer?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,…a) Using the following graph state the price and quantity the firm will be at if the monopoly market is in long run equilibrium. Explain why the firm will be at that price and quantity. b) State the conditions that establish the market structure monopoly, and the conditions needed for price discrimination and why firms price discriminate. (image attached)
- Suppose the market for asparagus has the following (inverse) market demand schedule: p=88-0.2Q The industry has the following cost structure: MC = ATC = $4 The Amalgamated Asparagus Company is looking to spend factor resources in socially-wasteful legal battles and advertising campaigns to maintain a full monopoly in this market. Answer the following. a. For its monopoly, Amalgamated Asparagus is willing to pay resources worth up to $14070 Suppose that competitive rent-seeking pressures cause Amalgamated Asparagus to pay its maximum willingness-to-pay for monopoly rights. b. Social cost of this monopoly = $ 4410 Hint: Your answer to (a) should be whole number. Think about why.The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract. Quantity 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 Price 60 55 50 45 40 35 30 25 b. Refer to Table 17-36. Suppose these 2 firms are price competing with each other (as what happens in a perfectly competitive market). What would total output be? a. 0 21250 12004.12
- 2. McDonalds (m) and Burger King (b) compete in hamburger market by selling imperfect substitutes. The demand equations are: Qm - 230 - 2pm + pb Qb= 230 - 2pb + Pm Assume that marginal cost and average cost is 5 for both firms. a) From the equations, how can you tell these goods are substitutes? b) Suppose the fims compete by simultaneously choosing price. Find the best response finction of each fim as a function of the other firm's price. c) Compute the equilibrium price and quantity for each fim.Problem 3. Longer problem. Consider 2 firms F1 and F2 that produce identical products and have identical cost functions c₁ (31) = y2 and c₂ (y2) = y2. The demand function is p (yr) = 24 - yr where yry1 + y2 is the output produced by the two firms. i) Find a competitive equilibrium including the price, quantity and profit in which price = marginal cost. ii) Find the monopoly solution including the price, quantity and profit in which marginal revenue marginal cost. iii) Find the oligopoly (duopoly) Nash equilibrium including the price, quantity and profit in which both firms engage in Cournot competition. iv) Suppose that the oligopolists form a cartel and play a repeated game. Assume that they maximize infinite discounted profits for periods t = 0, 1, 0, ..., specifically, To ++ (1+r)² + .... The duopolists can remain in cartel forever and share the monopoly profit equally so each of them gets Tm 2 + 2 77m 2(1+r) 2(1+r)² cheating + + Alternatively, one of them can decide to break the…Assume a monopoly firm is considering the production of two brands, 1 and 2. Marginal cost is constant at 20 for both products -- assume no fixed costs. The inverse demand for brand i is pi=140−qi−dqj , where i≠j and d is a constant. Part A) Find the firm's QUANTITIES
- DuopolyMarket for mechanical pencils can be described by the following demand schedule:Price | Number of pencils demanded$6 | 80$5 | 200$4 | 320$3 | 440$2 | 560$1 | 680$0 | 800The fixed cost is $340, while the variable cost is $0.50.d) If there were two firms on the market and they agreed to cooperate, how much would eachfirm need to produce? Follow the procedure outlined in the lecture and show that the otherfirm would prefer to deviate from the agreement.e) When the firms deviate from the agreement, there is a new optimal level of output. Showwhether the firms have an incentive to deviate from that level?f) If there were two firms on the market, what would be the price and the quantity of pencilstraded if the firms couldn’t cooperate?In the short run, each of the 5 firms in some industry faces a capacity constraint and constant marginal and average costs until this capacity is reached (see the table below). Marginal Cost = Average Cost Maximum output Firm 1 $50 100 Firm 2 $60 20 Firm 3 $67 50 Firm 4 $80 200 Firm 5 $92 70 Assuming that no firm has monopoly (pricing) power, what will be the quantity supplied at a price of (a) $40 (b) $55 (c) $73 (d) $99Problem 2: Presently, APlus Transport and Big Movers are the only suppliers of services that haul heavy construction equipment between jobs within the Midwest. No other suppliers have the equipment necessary to perform the service. The market inverse demand for these hauling services is given below. P = 4,030-4Q where P is price per trip and Q is total number of trips per year. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: a. C. TVC = 300 TVCB = 80QB b. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. d. Assume these two competitors operate as a two-firm Cournot duopoly. Find the reaction functions for each firm. Suppose Big Movers shuts down operations so that APlus now has a monopoly in this market. What is the price, quantity, and profits for APlus after this change? Summarize the results of your findings over the…