Now consider the same industry but assume that two firms with the same costfunction*c(qi) = 2 × qi for i = {1,2}are active in this market.What is the price that realizes when they set prices in a simultanous move game (iethey play Bertrand).0.50firm is insteadAssume now that the cost of the secondc(92) = 5* 92What is the equilibrium price if they again play Bertrand? (round to the nearestwhole number)1 A different industry has a Demand curve given byQ = 800p-2Assume that a monopolist supplies this industry. The cost function of thismonopolist is c(Q)=2*Q.What is the price the monopolist charges?00What is the quantity the monopolist sells?

Answered: Image /qna-images/answer/fafa9523-f176-428c-9560-875672087b5d.jpg

Answered: Now consider the same industry but…

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) Assume that there are 2 firms producing an identical product. Both firms have the same total cost function TC(q) =q2. The inverse demand function for the firms' output is p=120 Q, where Q is the total output and p is price. 1. What are the equilibrium price, output and profits of each firm if they are competing with each other? (Hint: Consider the equilibrium in a Cournot game.) 2. What happens if they form a cartel? Calculate the equilibrium price, output, and profits for the cartel? 3. If a single firm cheated, what would its output and profits be, assuming the other firm maintains the cartel price? Calculate the new outputs and profits for bath firms: 4. Discuss why it is hard to enforce a cartel. Explain using words. DO NOT do any calculations. DO NOT draw any graphs. 5. What can the cartel members do to enforce the cartel agreement? Propose a method. Describe the method using words. DO NOT do any calculations. DO NOT draw any graphs.
There are only two driveway paving companies in a small town, Asphalt, Inc. and Blacktop Bros. The inverse demand curve for paving services is ?= 2040 ―20? where quantity is measured in pave jobs per month and price is measured in dollars per job. Assume Asphalt, Inc. has a marginal cost of $100 per driveway and Blacktop Bros. has a marginal cost of $150. Answer the following questions: Determine each firm’s reaction curve and graph it. How many paving jobs will each firm produce in Cournot equilibrium? What will the market price of a pave job be? How much profit does each firm earn?
Let ci be the constant marginal and average cost for firm i (so that firms may have different marginal costs). Suppose demand is given by P=1-Q. Calculate the Nash equilibrium quantities assuming there are two firms in a Cournot market. Also compute market output, market price, firm profits, industry prof- its, consumer surplus, and total welfare. Represent the Nash equilibrium on a best-response function diagram. Show how a reduction in firm 1’s cost would change the equilibrium. Draw a representative isoprofit for firm 1.
Consider the following game. Firm 1, the leader, selects an output ?1, after which firm 2, the follower, observes the choice of ?1 and then selects its own output ?2. The resulting price is one satisfying the industry demand curve ? = 200 − ?. Both firms have zero fixed costs and a constant marginal cost of 60. Determine the equilibrium output of each firm in the leader-follower game. What are firm 1’s profits in the equilibrium?
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…
Select the correct statements. Note: Multiple correct, multiple selections. Topics covered: Stackelberg, Cournot, and Bertrand models. O A. Suppose the inverse market demand function is P (y) = a - by, and the marginal cost of each firm is K (same and constant). In this market, the market price will be higher if the market is a Stackelberg duopoly than the market price if it is a Cournot duopoly market. В. A Stackelberg leader will necessarily make at least as much profit as he would if he acted as a Cournot oligopolist. O C. Suppose, in a Stackelberg duopoly, the follower's output is measured on the horizontal axis. Profits to the follower will increase as we move to isoprofit lines that are further to the left. D. The equilibrium in Bertrand duopoly where both firms sell identical products is Pareto efficient. Е. In Cournot duopoly, if each firm has the same marginal MC = K, each firm produces the same level of output and earns the same profit.
Consider an industry with two firms, each of which has a constant marginal cost of 20. The inverse demand facing this industry is P(Y) = 220 −Y, where Y = y1 + y2 is the total output. 1. What is the competitive level of output? (Recall: price equals marginal cost at the competitive equilibrium.) 2. What is the output of each firm in the Cournot equilibrium? 3. What is the output of each firm in the Stackelberg equilibrium when firm 1 is the follower and firm 2 is the leader?
QUESTION 13 Consider a market where two firms (1 and 2) produce differentiated goods and compete in prices. The demand for firm 1 is given by D₁(P₁, P2) = 140 - 2p1 + P2 and demand for firm 2's product is D2 (P1, P2) 140 - 2p2 + P1 Both firms have a constant marginal cost of 20. What is the Nash equilibrium price of firm 1? (Only give a full number; if necessary, round to the lower integer; no dollar sign.)
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
A homogeneous products duopoly faces a market demand function given by Q = 102P, where Q = Q₁ + Q2. Both Q1 firms have a constant marginal cost MC = 2. 1. Suppose the two firms set their quantities simultaneously by guessing the other firm's quantity choice. Derive the equation of each firm's reaction curve and then graph these curves. 2. What is the Cournot equilibrium quantity and price in this market for each firm? 3. What would the equilibrium price in this market be if it were perfectly competitive? 4. What is the Bertrand equilibrium price in this market?
(I) Duopoly with homogeneous product: quantity and price competition Consider a market with two firms (firms 1 and 2). The (inverse) demand curve is: p = 30 - 2q where q= q1 + q2 Suppose Firm 1 has a marginal cost (c1) of 6 and Firm 2 has a marginal cost (c2) of 12. Assume neither firm has a fixed cost. (1) Suppose firms choose quantities sequentially: Firm 1 chooses q and after that decision is known Firm 2 chooses q2. Calculate the SPNE. (2) Suppose firms choose prices sequentially: Firm 2 chooses its price first and after that decision is known Firm 1 chooses its price. What is the SPNE? Justify.
Consider a duopoly market with 2 firms. Aggregate demand in this market is given byt Q = 500 – P, where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MC = 20, i=A,B. « Assume the firms compete a la Cournot. e a) Find the inverse demand in this market. Note that marginal revenue for both firms is given by MRA=500-2QA-QB, MRB=500-QA-2QB. b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm. d) What are the equilibrium quantities? e) What is the total quantity supplied on this market? f) What is the equilibrium price in this market?

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