b) Now suppose that Pepsi-Cola leaves the market so Coca-Cola remains as a monopolist in this market. Considering that its Mar- ginal Revenue function is now MRc = 1000 - 29c. What is the quantity and the price equilibrium in the market? Calculate the %3D Coca-Cola's benefits.
b) Now suppose that Pepsi-Cola leaves the market so Coca-Cola remains as a monopolist in this market. Considering that its Mar- ginal Revenue function is now MRc = 1000 - 29c. What is the quantity and the price equilibrium in the market? Calculate the %3D Coca-Cola's benefits.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter12: Price And Output Determination: Oligopoly
Section: Chapter Questions
Problem 1E
Related questions
Question
P3
![2. Suppose that in the cola soft drink market, the companies Coca-Cola
and Pepsi-Cola compete in an oligopoly. Let q is the number of cans
produced by each company in millions. If the total costs of each one
are given by:
TCc = 10 + 130qC
TCp = 10 + 170qp
where qc and qp represents the production of cola cans in millons for
Pepsi Cola and Pepsi Cola, respectively, thus, the marginal costs
and average total cost of each one are, respectively:
MCc = ACC = $130
MCp = ACP = $170
In addition, the demand curve for an average trip for this market is
given by
P = 1,000 – Q
where Q is the total of cans produced in the market in millions.
a) If each company can offer only 100, 200 or 300 million of trips,
calculate the benefits that each company could obtain, and say
how much each company would produce in the Nash equilibrium.
Calculate also the quantity and the equilibrium price in the mar-
ket.
b) Now suppose that Pepsi-Cola leaves the market so Coca-Cola
remains as a monopolist in this market. Considering that its Mar-
ginal Revenue function is now MRC = 1000 - 2qc. What is the
quantity and the price equilibrium in the market? Calculate the
Coca-Cola's benefits.
c) Suppose the government now allows free entry and exit of pro-
ducers and makes the market as a competitive market. Calculate
now the quantity and the equilibrium price under perfect compe-
tition. Use the highest marginal cost (MC = 170). What is the
benefit of each of the firms in the long term?
d) Graph the market demand curve and all market equilibriums cal-
culated in the preceding subsections. Compare your results and
say under what market structure the price is higher and under
which the quantity offered is the highest. Which market structure
is most convenient for producers?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd19ccf7d-b158-47bf-8870-3b82983ce245%2F9e06b893-45a1-471f-bbad-daf186bebf06%2Fwff82j_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Suppose that in the cola soft drink market, the companies Coca-Cola
and Pepsi-Cola compete in an oligopoly. Let q is the number of cans
produced by each company in millions. If the total costs of each one
are given by:
TCc = 10 + 130qC
TCp = 10 + 170qp
where qc and qp represents the production of cola cans in millons for
Pepsi Cola and Pepsi Cola, respectively, thus, the marginal costs
and average total cost of each one are, respectively:
MCc = ACC = $130
MCp = ACP = $170
In addition, the demand curve for an average trip for this market is
given by
P = 1,000 – Q
where Q is the total of cans produced in the market in millions.
a) If each company can offer only 100, 200 or 300 million of trips,
calculate the benefits that each company could obtain, and say
how much each company would produce in the Nash equilibrium.
Calculate also the quantity and the equilibrium price in the mar-
ket.
b) Now suppose that Pepsi-Cola leaves the market so Coca-Cola
remains as a monopolist in this market. Considering that its Mar-
ginal Revenue function is now MRC = 1000 - 2qc. What is the
quantity and the price equilibrium in the market? Calculate the
Coca-Cola's benefits.
c) Suppose the government now allows free entry and exit of pro-
ducers and makes the market as a competitive market. Calculate
now the quantity and the equilibrium price under perfect compe-
tition. Use the highest marginal cost (MC = 170). What is the
benefit of each of the firms in the long term?
d) Graph the market demand curve and all market equilibriums cal-
culated in the preceding subsections. Compare your results and
say under what market structure the price is higher and under
which the quantity offered is the highest. Which market structure
is most convenient for producers?
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