Consider the model of Bertrand competition with linear demand Q(p) = max[0, a – p) and with two- %3D firms, in which demand is split if the same price is set. Suppose linear demand with a = 8, and constant cost c = 3 per unit, suppose Firm 1 chooses price pi = 7 and firm 2 chooses price p2 = 6. Which of these prices p would be a profitable deviation from pi for Firm 1? 02 3 06 07 Suppose now a = 16, and constant cost c = 8 per unit, if p2 = 14, what is the best-response for Firm 1? 14

Consider the model of Bertrand competition with linear demand Q(p) = max[0, a – p) and with two- %3D firms, in which demand is split if the same price is set. Suppose linear demand with a = 8, and constant cost c = 3 per unit, suppose Firm 1 chooses price pi = 7 and firm 2 chooses price p2 = 6. Which of these prices p would be a profitable deviation from pi for Firm 1? 02 3 06 07 Suppose now a = 16, and constant cost c = 8 per unit, if p2 = 14, what is the best-response for Firm 1? 14

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a homogeneous goods industry where two firms operate and the linear demand is given by p(y1 + y2 ) = a - b(y1 + y2 ), where p is the market price, and y1 (y2) is the output produced by firm 1 (2). There are no costs for firm 1 or firm 2. A. Derive the best responses (reaction curve) for firm 1 and firm 2. Explain the term best response (reaction curve). Illustrate the best responses in a diagram B. For the case in (a) determine the Cournot equilibrium (Nash equilibrium in quantities) when firm 1 and firm 2 compete simultaneously in quantities. C. How large are firm 1’s and firm 2’s profits?
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Suppose that firm Alphabet is the only company that sells all-inclusive vacation packages in the UK. It faces two markets with demand curves given by P₁ = 200 - Q₁ and P₂ = 100-Q2. Assume that Alphabet's total cost function is C = 400 + 200 1) What is the market structure of the all-inclusive vacation packages in the UK? Is firm Alphabet a price taker or price maker? Explain. 2) If Alphabet can price discriminate and could tell which consumer belongs to which market before the purchase happens, what is the type of price discrimination that Alphabet is practising? Explain. Give another example of the same type of price discrimination. 3) If Alphabet can charge different prices at those two markets, what price should it charge in each market in order to maximise profits? What are the quantities it should produce in each market? 4) What if he cannot price discriminate? Then what price should he charge? What is the quantity produced?
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**Practice**
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Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. PRICE (Dollars per pound) 100 90 80 70 80 50 40 30 20 10 0 0 125 250 375 500 825 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Demand Because you know that competitive firms earn Supply (10 firms) True Supply (15 firms) If there were 10 firms in this market, the short-run equilibrium price of rhodium would be $ would . Therefore, in the long run, firms would False Supply (20 firms) per pound. From the graph, you can see that this means there will be ? per pound. At that price,…
Economics Consider a three-firm homogeneous product industry. The market demand function is X=1000-40P. The cost functions of the firms are: C1= 20X1, C2=13.5X2+0.075X22, and C3=16.3X3+0.005X32. Where, X=X1 + X2 + X3. 1. Explain the Firm's Cournot Behaviour. 2. Assuming the firms' practice on Cournot Behaviour, calculate the market price, outputs of the firms and their profits
3 In a Cournot market with two firms, the inverse market demand curve is P=50-2Q, where Q=q1+q2(Firm 1’s output is ; Firm 2’s output is ). Both firms have a constant marginal cost of 14. If Firm 2 produces 12 units of output, how much should Firm 1 produce? Group of answer choices 3 6 0 12
2.- Each of two firms, firms 1 and 2, has a cost function C(q) = 1 2 q; the demand function for the firms' output is Q = 1.5-p, where Q is the total output. Firms compete in prices. That is, firms choose simultaneously what price they charge. Consumers will buy from the firm offering the lowest price. In case of tying, firms split equally the demand at the (common) price. The firm that charges the higher price sells nothing. (Bertrand model.) (a) Formally argue that there could be no equilibrium in prices other than p1 = p2 = 1 2. (b) Solve the same problem, but this time assuming that firms compete in quantities.Now, suppose that firm 1 has a capacity constraint of 1/3. That is, no matter what demand it gets, it can serve at most 1/3 units. Suppose that these units are served to the consumers who are willing to pay the most. Thus, even if it sets a price above that of firm 1, firm 2 may be able to sell some output. (c) Obtain the (residual) demand of firm 2 (as a function of its own…