Consider the purchase contract between the prime contractor and thesubcontractor in the monopolistic demand market. Thesubcontractor's cost function is Ciq, where q is the quantity and C isits marginal cost. i = {H, L} and CH>CL. The marginal cost of thesubcontractor is known only to the subcontractor, and the probabilitythat it is CH equals to a. The profit function of the prime contractor isv(q)-t, and the profit function of the subcontractor is t-ciq, where t isthe total purchase price paid by the prime contractor to thesubcontractor. The subcontractor's retention rate is zero.A. Illustrate the social optimal quantity (q, q) and explain why it isoptimal. Under the asymmetric information, illustrate and explain thequantity(aq) and payment (t), t) that the prime contractor buysfrom each type of subcontractor to maximize profit. Compare theaprime contractor's profit-maximizing quantity (9,9₁) with thesocially optimal quantity (q, q) and explain why they differ. Pleasedraw the graphs to explain your answer.

Problem Breakdown 1.Cost Functions and Marginal Costs: Subcontractor's price feature: (Ciq)…

Answered: Consider the purchase contract between…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

A store estimates is customer inverse demand is P= 6.1 - 2.6Q, and the marginal cost of each rental is $0.48. If they use block pricing, what should the price be for the entire package?
5. Exercise 4.5 Roger is a regular consumer of personalized greeting cards with Hofmann photographs. Its demand curve is given by q = 31 -0.5P. Rogelio is a representative consumer of this type of cards so we can assume that the rest of the customers, 1,000 in total, have the same demand curve. The supplier company, Hofmann, can produce each card at a constant average and marginal cost of €2. In the market of personalized greeting cards there are many other companies that offer very similar cards. Consider the following 4 scenarios: (i) Hofmann acts as a perfect competitor. ii) Hofmann acts as a monopolist. iii) Hofmann acts as a first-degree discriminator monopolist iv) Hofmann acts as a second-degree discriminator monopolist and offers each of its customers the possibility to buy the first 15 cards at a unit price of € 32, the next 5 (from € 16 to 20) at a unit price of € 22 and the following 10 (from € 21 to 30) at a unit price of €2. Calculate, for the 4 scenarios proposed, the…
Suppose Bang Bang is the only local swimming pool. She believes that there are 10 potential customers. Each of them has an identical demand function of QI = 250 – 0.02P, with QI as the unit of services of each customer. She operates with a constant variable cost of $500 per unit of service. If Bang Bang can practice a two-part tariff with a membership arrangement, suggest the optimal pricing strategy. Show your calculations
The monopolistic competitor faces a demand curve given by q(p)=50-5p.its cost function is c(y)=4y .what is it's optimal level of output and price
A downtown bar serves a drink that UCSB students love. The profit-maximizing owner knows that any given student has a demand for drink given by p = 14 -q and a non-student has demand p 6 – q. Because the bar can't identify whether a customer is a student, she decides to sell drinks in packages. She offers a large package of 12 drinks and a small package of 4 drinks, and each student is only allowed to buy one package. Resales are strictly prohibited. The bar's marginal cost is 2. If both packages are offered and priced optimally, what is the minimum surplus students must get from the large package in order to not want to buy the small package? a. 64 32 O C. 26 O d. 80 b.
A firm with market power has an individual consumer demand of Q 10 P and total costs of C = 2Q. What is the optimal amount of this product to package in a single block? Multiple Choice 2 8 64 =
A city has two newspapers. Demand for either paper depends on its own price and the price of its rival. Demand functions for papers A and B respectively, measured in tens of thousands of subscriptions, are 21-2Pa + Pb and 21 + Pa-2Pb The marginal cost of printing and distributing an extra paper just equals the extra advertising revenue one gets from another reader, so each paper treats marginal costs as zero. Each paper maximizes its revenue assuming that the other's price is independent of its own choice of price. If the papers enter a joint operating agreement where they set prices to maximize total revenue, by how much will newspaper prices rise? (a) 3 (b) 2 (c) 0 (d) 3.5 (e) 2.5
A city in a developing country does not have a provider of water and sanitation services, leading to poor health outcomes for its citizens. A firm is considering entering that market. The cost curve is C(q) = 10+2q, and the inverse demand is P(q) = 10—q. The government of that city knows that, because of the high fixed cost to operate in this market, any entrant is likely to become a monopolist. Thus, they decide to implement the following regulation: the firm is not allowed to choose a price above an upper limit of p (which the government chooses and sets in the law before the firm decides to enter). There will be no transfers between the government and the firm. Assume that the firm only enters the market if it can get profits of at least zero, given the government's choice of p. Suppose that the government's goal is to maximize consumer surplus. Which of the following statements is the most correct? (a) The government needs to set p = 2, because it's the marginal cost. That…
The Incumbent operates in the market for good A. The Inverse demand function Is given by p= 110 - Q. Incumbent's total cost equals TC(q)=10q (a) Find the monopoly output and profit (b) A new firm with the same technology can enter the market by paying the setup cost F= 225. In this case, the firms will compete in the Stackelberg way: the Incumbent will set q1 and after that having observed q, the entrant will choose q2. Find the optimal output q1. (Hint: consider two cases: entry Istrategic entry deterrence.)
Cathy sells hand sanitizers in a small town. Daily sanitizer demand equal Q(P)=300-25P Where Q is the market output and p is market price Cost of bottling and distributing is C(q)=4q Suppose cathy is the only seller of sanitizer, what price should cathy charge? What profit does she earn? Suppose dom also produces hand sanitizer in town, and cathy and domm both simultaneously choose price of hand sanitizer, consumers have perfect information. Derive the reaction functions for cathy and domm What is the Nash equilibrium for this market?
Three oligopolistic banks operate in the loan market with the inverse demand functiongiven by r (Q) = a-Q, where r is the interest rate per unit of loan and Q = q1 +q2 +q3and qi>=0 is the total amount of loans issued by bank i = 1, 2, 3. Also, a > 0 is aconstant. The cost of funds for bank i is given by cqi, where c belongs (0, a) is a constant.A bank's profit from loans is (r -c)qi. (1) Suppose the banks engage in Cournot competition. Find the symmetricNash equilibrium. How much profit does each bank make? (2) Now suppose banks compete in the following sequential manner: Bank1 chooses q1. Then banks 2 and 3 observe q1 and then simultaneously choose q2and q3, respectively. Find the subgame perfect equilibrium. How much profit doeseach bank make here? Does bank 1 enjoy an advantage being the first mover?
Two identical firms compete as a Cournot duopoly. The demand they face is P = 100-2Q. The cost function for each firm is C(Q)= 40. In equilibrium, the deadweight loss is Multiple Choice $256. $512 $128 5394

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS