Faye is an entrepreneur considering whether to enter the market for providing websites to universities offering online learning. The market is currently perfectly competitive, and the market-clearing price is $10,000 per client. Her marginal cost is given by the equation MC = 200Q. a. In this market, what is Faye’s marginal revenue function? b. If Faye enters the market, how many website clients will she have, and what will her profit be? You can assume no fixed cost.
Faye is an entrepreneur considering whether to enter the market for providing websites to universities offering online learning. The market is currently
a. In this market, what is Faye’s marginal revenue function?
b. If Faye enters the market, how many website clients will she have, and what will her profit be? You can assume no fixed cost.
Now imagine Faye asks you for advice. She knows you have just taken this course, and you learned about market power.
c. Explain two ways Faye can achieve greater market power in this market.
Faye takes your advice, and she is now the monopolist in a new market, where the demand curve is given by Q = 300,000 – 1,000P
d. What is Faye’s new marginal revenue curve?
e. In this new market, how clients will she have, and at what price will she sell her services?
Now imagine you see all the profits Faye is making and you decide to compete with her. You face the same cost curve as she does (both fixed and marginal costs)
f. If you and Faye compete via Bertrand competition, what is the
g. If you both compete via Cournot competition, what is the equilibrium price, and how many clients does Faye have?
h. Now let’s make it more realistic – Faye is the first mover in this market, and you two compete via Stackleberg competition. Under this assumption, what is the equilibrium price, and how many clients does Faye have?
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