Note: Chat GPT or any AI keeps getting this question wrong. Question is in the image below. Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformlyalong a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm hasconstant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travelcost of 4 times the square of traveled distance.Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment.Suppose now that firms can price discriminate between consumers located in the interval悯(interval 1) and those locatedin the interval瞓(interval 2). Find equilibrium prices of firm A and B on the interval 1.Answer:equilibrium uniform price of firm A =profit of firm A under uniform pricing =equilibrium price of firm A on interval 1 =equilibrium price of firm B on interval 1 =✓

The Hotelling model analyzes competition between firms located at opposite ends of a market segment.…

Answered: Consider a standard Hotelling model of…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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Problem 3 Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously. a) Derive the demand for each firm by identifying the location of the indifferent con-sumer for each price pair. Assume that all consumers know about both products. b) Consider again that consumers can only buy after receiving an ad. Suppose there is an avdertising company that offers the firms to coordinate the targeting of their ads. The company suggests to inform all consumers with a location between 0 and 0.4 the product of the firm at location 0 and to all consumers between 0.6 and 1 the product of the firm at location 1. Determine the optimal prices for both firms if they accept this offer. What are the resulting profits? ( please solve question b only)
Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously. a) Derive the demand for each firm by identifying the location of the indifferent consumer for each price pair. Assume that all consumers know about both products. b) Write down the profit functions and calculate the Nash equilibrium prices for both firms. c) Assume that consumers only know the product if they have received and ad. Suppose that ads are not targeted and each firm reaches any consumer with probability 0.5 with her ad. Calculate the size of the different consumer segments. Determine the resulting demand and the new Nash equilibirum prices of the firms. d) Suppose that the ads are costless. When do the firms make larger profits? With fully informed consuemers b) or with imperfect…
Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously. a) Derive the demand for each firm by identifying the location of the indifferent con-sumer for each price pair. Assume that all consumers know about both products. e) Consider again that consumers can only buy after receiving an ad. Suppose there is an avdertising company that offers the firms to coordinate the targeting of their ads. The company suggests to inform all consumers with a location between 0 and 0.4 the product of the firm at location 0 and to all consumers between 0.6 and 1 the product of the firm at location 1. Determine the optimal prices for both firms if they accept this offer. What are the resulting profits?
Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously. a) Derive the demand for each firm by identifying the location of the indifferent con- sumer for each price pair. Assume that all consumers know about both products. b) Write down the profit functions and calculate the Nash equilibrium prices for both firms. c) Assume that consumers only know the product if they have received and ad. Suppose that ads are not targeted and each firm reaches any consumer with probability 0.5 with her ad. Calculate the size of the different consumer segments. Determine the resulting demand and the new Nash equilibirum prices of the firms. d) Suppose that the ads are costless. When do the firms make larger profits? With fully informed consuemers b) or with imperfect…
Consider a market with two firms. Each firm is located at one end of a line with lenght one. There is a mass one of consumers. The location of each consumer is given by 0 < x < 1 which is uniformly distributed (with density 1). Firms have no cost of production and set price simultaneously.a) Derive the demand for each firm by identifying the location of the indifferent con- sumer for each price pair. Assume that all consumers know about both products.b) Write down the profit functions and calculate the Nash equilibrium prices for both firms.c) Assume that consumers only know the product if they have received and ad. Suppose that ads are not targeted and each firm reaches any consumer with probability 0.5 with her ad. Calculate the size of the different consumer segments. Determine the resulting demand and the new Nash equilibirum prices of the firms.d) Suppose that the ads are costless. When do the firms make larger profits? With fully informed consuemers b) or with imperfect ads…
A4
Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel cost of 4 times the square of traveled distance. Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment. Suppose now that firms can price discriminate between consumers located in the interval 悯 (interval 1) and those located in the interval 瞓 (interval 2). Find equilibrium prices of firm A and B on the interval 1. Answer: equilibrium uniform price of firm A = profit of firm A under uniform pricing = equilibrium price of firm A on interval 1 = equilibrium price of firm B on interval 1 = ✓
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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?
Give introduction step also Hand written solution is not allowed will upvote.
Please no written by hand solution Considerthe following problem. There are five firms producing a homogenous good and competing in quantities simultaneously. The demand function for this good is given by D(p) = 100−p, where p denotes price. The marginal cost is the same for all firms and equals 40 Answer the following questions. (a) Compute the equilibrium quantities and profits of each firm. (b) Now suppose that two of these firms (say firms 1 and 2) want to merge. (The remaining firms stay unchanged.) Merging, however, is costly. To merge, each merging firm has to pay a fixed cost F. Determine the highest fixed cost F that the two firms would be willing to pay in order to proceed with the merger.
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