Consider the Cournot oligopoly model with costly finance similar to the one studied in the class. Firms want to deliver Cloud Computing (Storage) service. Suppose at t = 0 each firm has to make a fixed investment (fixed cost) F which determines the firm's production capacity for the remaining periods t = 1, .., so that y ≤F. Variable production costs each period are linear cu(y) = y. 1. For the time being ignore t = 0 and assume that N firms operate in periods t = 1, ..., with unlimited production capacity. What is the production level of each firm and its profit per period. ∞ 2. Suppose now that the firms have to invest the fixed cost F at t = 0 in order to be able to produce y y. What number of firms will enter in the industry when the interest rate is r = 1/30 (approximately 3.33 %)? 3. What would be the answer to the previous question if the interest rate was r = 10/9

Consider the Cournot oligopoly model with costly finance similar to the one studied in the class. Firms want to deliver Cloud Computing (Storage) service. Suppose at t = 0 each firm has to make a fixed investment (fixed cost) F which determines the firm's production capacity for the remaining periods t = 1, .., so that y ≤F. Variable production costs each period are linear cu(y) = y. 1. For the time being ignore t = 0 and assume that N firms operate in periods t = 1, ..., with unlimited production capacity. What is the production level of each firm and its profit per period. ∞ 2. Suppose now that the firms have to invest the fixed cost F at t = 0 in order to be able to produce y y. What number of firms will enter in the industry when the interest rate is r = 1/30 (approximately 3.33 %)? 3. What would be the answer to the previous question if the interest rate was r = 10/9

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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