Consider a Cournot competition model with two firms. Inverse demand is given by p = 24-Q. Firms have a marginal costs of 2c (c for the labour cost of one unit of output and c for the capital cost of one unit of output). Firm 2 has a fixed cost of f. Suppose now that before choosing output firm 1 has given many people a fixed labour contract and that it cannot fire them so that its marginal cost is effectively equal to c., a. Derive the Cournot - Nash equilibria in period 2 for any K if f 0 and c = 2. b. Will firm 1 want to deter entry in case f = 0 and c = 2 ? If so, which K will it produce? c. Will firm 1 want to deter entry in case c = 2, f = 30? If so, which K will it choose? d. If c = 3, for what values of f will the incumbent want to engage in entry deterrence?

usiness EconomicsQ&A LibraryTwo firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB  (Note: qA = Firm A Output; qB =  Firm B Output) they must produce since they are the only two firms in the industry that manufacture this product. Their marginal cost (MC) is equal to their average cost (AC) and it is constant at MC = AC = X, for both firms.  Market demand is given as Q = Y – 2P (where P = price and Q = quantity).  Select any value for X between [21 – 69] and any value for Y between [501 – 999].  Using this information, calculate the Industry Price, Industry Output, Industry Profit, Consumer Surplus and Deadweight Loss under each of the following models:       (a) Cournot Model Two firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB  (Note: qA = Firm A Output; qB =  Firm B Output) they must produce since they are the only two firms in…

A firm in a perfectly competitive industry has patented a newprocess for making widgets. The new process lowers the firm’saverage cost, meaning that this firm alone (although still aprice taker) can earn real economic profits in the long run. a. If the market price is $20 per widget and the firm’s marginalcost is given by MC=0.4q , where q is the dailywidget production for the firm, how many widgets willthe firm produce? b. Suppose a government study has found that the firm’snew process is polluting the air and estimates the socialmarginal cost of widget production by this firm to be. If the market price is still $20, what is thesocially optimal level of production for the firm? Whatshould be the rate of a government-imposed excise tax tobring about this optimal level of production? c. Graph your results.

Consider a competitive industry with a large number of firms, all ofwhich have identical cost functions c(y) = y^2 + 1 for y > 0 and c(0) = 0. Supposethat initially the demand curve for this industry is given by D(p) = 52 − p. If there are n number of firms , what is the industry supply curve?