5. Firms 1 and 2 compete on quantity with some product differentiation. They each have zero cost of production (zero marginal cost, zero fixed cost), but firm 1 may advertise and incur related costs. Demand for firm 1 is P1 = 10 – 91 - 92 + A, where q, and q, are quantities for firms 1 and 2, and A is firm l's level of advertising. The cost of advertising is A?. Firm 2 does not advertise. Demand for firm 2 is P2 = 10 – 41 - 92- First we consider the static game where all actions are simultaneous; thus, player l's strategy is s, = {41,A}, and player 2's strategy is s, = 42. a. Find firm 2's best response to some belief in s,. %3D b. Find the Nash Equilil ium quantities {a. a and advertising level A in the static

5. Firms 1 and 2 compete on quantity with some product differentiation. They each have zero cost of production (zero marginal cost, zero fixed cost), but firm 1 may advertise and incur related costs. Demand for firm 1 is P1 = 10 – 91 - 92 + A, where q, and q, are quantities for firms 1 and 2, and A is firm l's level of advertising. The cost of advertising is A?. Firm 2 does not advertise. Demand for firm 2 is P2 = 10 – 41 - 92- First we consider the static game where all actions are simultaneous; thus, player l's strategy is s, = {41,A}, and player 2's strategy is s, = 42. a. Find firm 2's best response to some belief in s,. %3D b. Find the Nash Equilil ium quantities {a. a and advertising level A in the static

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Suppose we live in a world where the widgets market is a monopolistically competitive market with homogenous firms (i.e. no productivity differences among firms). There are two countries: A and B. In each country, consumer demand for widgets can be written as Q = S x- x (P – P), 30 where n is the number of widget firms, P the price of widget charged by the firm, and P the average price of widget by other firms in the market. Moreover, widget firms in both countries have the same total cost function, which is C = 750 + (5 × Q). It is also given that marginal revenue of each 30Q firm can be written as MR = P – Total demand for widget in country A is SA = 900 and Sg = 1600 in country В. a) Derive the average cost function from the total cost function. What is the marginal cost? b) Calculate the number of firms and the prices of widget in each country when trade is not allowed (that is, calculate na, ng, Pa, PBÌ- c) Calculate the number of firms and the price of widget in the unified…
3. Demand for a good produced by a duopoly is given by P = 100 - Q. Both firms have constant marginal costs, MC = 20 and zero fixed costs. Firms can choose to maximize profit or revenue. Suppose firm 1 choose to maximise profit and firm 2 choose to maximise revenue. Determine the equilibrium price and quantity of each firm.
2) There are three identical firms in the market research industry. The demand is 1 – Q, where Q = q1 + q2 + q3. The marginal cost is zero. b. Show that if two of the three firms merge (transforming the industry into a duopoly), the profit of these firms decreases. Explain why and use a table to show the changes.
5- 3- 1- 20 40 60 80 100 Q MR Using the above graph, This profit-maximizing firm will produce Blank 1 units. -MC What price will this profit-maximizing firm charge? $Blank 2 (Do NOT enter the '$' in your response. Enter only the whole dollar amount; do NOT enter cents.) If the industry was perfectly competitive instead of monopolistic, then market output would be Blank 3 units and market price would be $Blank 4. (Do NOT enter the '$' in your response. Enter only the whole dollar amount; do NOT enter cents.) Blank 1 Blank 2 Blank 3 Blank 4 Add your answer Add your answer Add your answer Add your answer
Price (dollars per unit) 100 90 8.5 80 70 55 40 30 20 10 0 MR₂ 20 40 60 80 100 140 $100; 200 $90; 220 $80; 200 $85; 250 MC ATC •D₁ LRAC MR₁ 200 220 250 Quantity (units per week) Using FIGURE #6, assume this firm faces demand curve D₁. If this firm in monopolistic competition is maximizing profit they will charge a price of produce a quantity of ____ units. and
graphically operate where demand is inelastic? Complete either parts c and d OR parts e and f. c. Which of the four forms of industry competition have advertiking? Why is for its product is inelastic? Why does it NOT want to advertising experienced in this/these form(s) of competition and not experienced I. in the other form(s) of competition? d. Which type(s) of industry competition, of the four studied, displayed allocative efficiency? Does allocative efficiency exist in the short-run, long-run, or both? Which type(s) of industry competition exhibits mutual interdependence? Why is it experienced in this type(s) of industry competition and not the other type(s)? f Why does monopolistic competition exhibit excess capacity? What type of efficiency is not being realized because of it? To achieve this type of efficiency, what should happen to the number of firms within this industry?
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)
13. bubbled is the wrong answer
In competitive market structure, firms earn zero economic profit in the long run but still remain in the market. Firms facing loss in short run may continue to produce in a competitive market structure. Price discrimination is beneficial for the society in general but it is difficult to practice in real world. Monopolistically competitive firms are producing efficiently because P=MC in the long-run. 5. Advertising helps raise revenue for the firms and provides information to the customers; therefore, expenditures on advertising are justified.
Since products are differentiated in_____ each firm faces a downward sloping demand curve, and firms have limited market power. a. Monopoly b. Perfect Competion c. Oligopoly d. Monopolistic Competetion e. All of the Above
11. In which market structure will a firm choose to stay in business (i.e. not shut down) when P
9. Firms 1 and 2 are proposing to merge. They offer symmetrically differentiated products and have identical costs and, therefore, identical premerger prices. (Note that “symmetrically differentiated products” means that if they charge the same price, then they have the same demand.) The common premerger price for firms 1 and 2 is $90, and the common marginal cost is $60. If firm 1 were to raise its price to $100, we know that its demand would drop by 20 units and firm 2’s demand would rise by 5 units. a. Assume the merger would reduce marginal cost by 10 percent. Using UPP, is there reason to be concerned with the merger? b. Suppose the prospective merger partners want to convince the DOJ that the merger will not raise price. Using UPP, how large must they argue the efficiency is? c. Suppose there are improved estimates of firms’ demand functions and now we know that if firm 1 were to raise its price to $100, its demand would (still) drop by 20 units, but firm 2’s demand would rise by…