Demand is assumed to be unit-elastic: X(p) = 1/p. There are m ≥ b2 firms operating in the market with constant marginal cost levels c1 ≤ c2 ≤ ……. ≤ cm. They engage in Cournot competition. a. Show that the equilibrium price implies Lerner indexes Where si is the market share of firm i. b. Using the equilibrium price, show that the profit of firm i is equal to (si)2. c. Show that the industry profit is equal to the Herfindahl index H = Σi(si)2. d. What is the effect of a specific taxt on equilibrium price? How does this tax affect the industry profit and the Herfindahl index?
Demand is assumed to be unit-elastic: X(p) = 1/p. There are m ≥ b2 firms operating in the market with constant marginal cost levels c1 ≤ c2 ≤ ……. ≤ cm. They engage in Cournot competition. a. Show that the equilibrium price implies Lerner indexes Where si is the market share of firm i. b. Using the equilibrium price, show that the profit of firm i is equal to (si)2. c. Show that the industry profit is equal to the Herfindahl index H = Σi(si)2. d. What is the effect of a specific taxt on equilibrium price? How does this tax affect the industry profit and the Herfindahl index?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Demand is assumed to be unit-elastic: X(p) = 1/p. There are m ≥ b2 firms operating in the market with constant marginal cost levels c1 ≤ c2 ≤ ……. ≤ cm. They engage in Cournot competition.
a. Show that the
Where si is the market share of firm i.
b. Using the equilibrium price, show that the profit of firm i is equal to (si)2.
c. Show that the industry profit is equal to the Herfindahl index H = Σi(si)2.
d. What is the effect of a specific taxt on equilibrium price? How does this tax affect the industry profit and the Herfindahl index?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps with 9 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
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 (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