Firm 1 can produce a good. It faces a private cost of q^2/2 where q is the number of units produced. a) Suppose that Firm 1 is a monopoly and that demand is given by Q=a-bp. There is only one period. Since the firm is a monopoly, the firm can choose a quantity or a price. Should the firm choose a price or a quantity? What is the equilibrium price and quantity if the firm makes the optimal decision? b) Suppose now that another firm is in this market. Both firms have the same cost function and the product they create is homogeneous. There are no capacity constraints. No collusion is possible. Firm 1 can decide if both firms should compete on price or on quantities. Both firms will compete on prices if Firm 1 chooses to compete on price and both firms will compete on quantity if Firm 1 chooses to compete on quantity. What should firm 1 choose and what is the equilibrium price and quantity in that market?

Firm 1 can produce a good. It faces a private cost of q^2/2 where q is the number of units produced. a) Suppose that Firm 1 is a monopoly and that demand is given by Q=a-bp. There is only one period. Since the firm is a monopoly, the firm can choose a quantity or a price. Should the firm choose a price or a quantity? What is the equilibrium price and quantity if the firm makes the optimal decision? b) Suppose now that another firm is in this market. Both firms have the same cost function and the product they create is homogeneous. There are no capacity constraints. No collusion is possible. Firm 1 can decide if both firms should compete on price or on quantities. Both firms will compete on prices if Firm 1 chooses to compete on price and both firms will compete on quantity if Firm 1 chooses to compete on quantity. What should firm 1 choose and what is the equilibrium price and quantity in that market?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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