Assume that two firms, Wilson and Spalding, can manufacture basketballs for the entire Norfolk market, and that the market is oligopolistic in structure. Market Demand: Q-120-P Total Costs: TC = 200 Q the quantity of basketballs P the price of a basketball in $ US TC the total cost of producing a given quantity of basketballs (in $ US) Show all of your work in solving the problems below. 1) The Cournot Model: Now assume that the two firms are Cournot competitors, and that all the assumptions of the Cournot model are met: no firm entry, homogeneous goods, a single period, and that the firms choose the quantities of basketballs to supply. Now, how many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for each of the two firms? Demonstrate the model using graphs. (See Figs. 9-3 to 9-10) 2) The Stackelberg Model: Assume that the two firms are Stackelberg competitors, and that Wilson is the Stackelberg leader and Spalding the follower. All the assumptions of the Cournot model are met: no firm entry, homogeneous goods, a single period, and that the firms choose the quantities of basketballs to supply, but that Wilson gets to decide its strategy first, in full knowledge of Spalding's reaction function. Now, how many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for each of the two firms? Demonstrate the model using graphs. (See Fig. 9-11) 3) The Bertrand Model: Now assume that the two firms are Bertrand competitors and that the firms compete by choosing price. How many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for the two firms? Demonstrate the model using graphs. (See Bertrand Oligopoly) 4) The Cartel/Collusion Model: Assume that the two firms get together and form a cartel. How many basketballs will be sold in the market and at what price? What will be the total revenues, total costs, and combined profit for the two firms? Demonstrate the model using a graph. (See Figs. 9-9 to 9-10 on collusion.)
Assume that two firms, Wilson and Spalding, can manufacture basketballs for the entire Norfolk market, and that the market is oligopolistic in structure. Market Demand: Q-120-P Total Costs: TC = 200 Q the quantity of basketballs P the price of a basketball in $ US TC the total cost of producing a given quantity of basketballs (in $ US) Show all of your work in solving the problems below. 1) The Cournot Model: Now assume that the two firms are Cournot competitors, and that all the assumptions of the Cournot model are met: no firm entry, homogeneous goods, a single period, and that the firms choose the quantities of basketballs to supply. Now, how many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for each of the two firms? Demonstrate the model using graphs. (See Figs. 9-3 to 9-10) 2) The Stackelberg Model: Assume that the two firms are Stackelberg competitors, and that Wilson is the Stackelberg leader and Spalding the follower. All the assumptions of the Cournot model are met: no firm entry, homogeneous goods, a single period, and that the firms choose the quantities of basketballs to supply, but that Wilson gets to decide its strategy first, in full knowledge of Spalding's reaction function. Now, how many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for each of the two firms? Demonstrate the model using graphs. (See Fig. 9-11) 3) The Bertrand Model: Now assume that the two firms are Bertrand competitors and that the firms compete by choosing price. How many basketballs will be sold by each firm and at what price? What will be the total revenues, total costs, and the profits for the two firms? Demonstrate the model using graphs. (See Bertrand Oligopoly) 4) The Cartel/Collusion Model: Assume that the two firms get together and form a cartel. How many basketballs will be sold in the market and at what price? What will be the total revenues, total costs, and combined profit for the two firms? Demonstrate the model using a graph. (See Figs. 9-9 to 9-10 on collusion.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Assume that two firms, Wilson and Spalding, can
manufacture basketballs for the entire Norfolk market, and
that the market is oligopolistic in structure.
Market Demand: Q-120-P
Total Costs: TC-200
Q the quantity of basketballs
P the price of a basketball in $ US
TC the total cost of producing a given quantity of
basketballs (in $ US)
Show all of your work in solving the problems below.
1) The Cournot Model: Now assume that the two firms are
Cournot competitors, and that all the assumptions of the
Cournot model are met: no firm entry, homogeneous
goods, a single period, and that the firms choose the
quantities of basketballs to supply. Now, how many
basketballs will be sold by each firm and at what price?
What will be the total revenues, total costs, and the
profits for each of the two firms? Demonstrate the
model using graphs. (See Figs. 9-3 to 9-10)
2) The Stackelberg Model: Assume that the two firms are
Stackelberg competitors, and that Wilson is the
Stackelberg leader and Spalding the follower. All the
assumptions of the Cournot model are met: no firm entry,
homogeneous goods, a single period, and that the firms
choose the quantities of basketballs to supply, but that
Wilson gets to decide its strategy first, in full knowledge
of Spalding's reaction function. Now, how many
basketballs will be sold by each firm and at what price?
What will be the total revenues, total costs, and the
profits for each of the two firms? Demonstrate the
model using graphs. (See Fig. 9-11)
3) The Bertrand Model: Now assume that the two firms
are Bertrand competitors and that the firms compete by
choosing price. How many basketballs will be sold by
each firm and at what price? What will be the total
revenues, total costs, and the profits for the two firms?
Demonstrate the model using graphs. (See Bertrand
Oligopoly)
4) The Cartel/Collusion Model: Assume that the two firms
get together and form a cartel. How many basketballs
will be sold in the market and at what price? What will
be the total revenues, total costs, and combined profit for
the two firms? Demonstrate the model using a graph.
(See Figs. 9-9 to 9-10 on collusion.)
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