C2) Consider an industry with only two firms: firm A and firm B. The industry's inverse demand isP(Q) = 400 - ¹1/Q,10where P is the market price and Q is the total industry output. Each firm has a marginal cost of $10. There areno fixed costs and no barriers to exit the market.a) Suppose that the two firms engage in Cournot competition. Find the equilibrium price PNE in theindustry, the equilibrium outputs QANE and QBNE, as well as the profits NEA and NEB for each firm.marks]b) Suppose the two firms engage in Stackelberg competition, with firm A moving first, and firm Bmoving second. Find the equilibrium price PS in the industry, the equilibrium outputs QS and QBS, aswell as the profits π and TSB for each firm.вc) For this subquestion only, suppose that firm B has a fixed cost of $200 000: What will firm B'soptimal decision be, and what will be the resulting market structure?Now assume that instead of having two firms in the market, we have a monopoly facing the inverse demandP(Q): = 400-10Q. The monopoly's marginal cost is $10.d) Find the price PM and the quantity QM that the monopoly will optimally choose. Find the monopolyprofit лM.e) Suppose that the monopoly described in (d) can first degree price discriminate. Find (calculate) theMonopoly's quantity, price, profit, the consumer surplus and the deadweight loss in this case. Draw arepresentative graph here.

has a xed cost of $200 000. What will uns optimal decision be, and what will be the resulting market structure? Now assume that instead of having two firms in the market, we have a monopoly facing the in P(Q) = 400 - 100. The monopoly's marginal cost is $10. d) Find the price PM and the quantity QM that the monopoly will optimally choose. Find profit лM. e) Suppose that the monopoly described in (d) can first degree price discriminate. Find (c Monopoly's quantity, price, profit, the consumer surplus and the deadweight loss in thi representative graph here.

has a xed cost of $200 000. What will uns optimal decision be, and what will be the resulting market structure? Now assume that instead of having two firms in the market, we have a monopoly facing the in P(Q) = 400 - 100. The monopoly's marginal cost is $10. d) Find the price PM and the quantity QM that the monopoly will optimally choose. Find profit лM. e) Suppose that the monopoly described in (d) can first degree price discriminate. Find (c Monopoly's quantity, price, profit, the consumer surplus and the deadweight loss in thi representative graph here.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Perfect Competition

It is the structure of the market that is said to exist when with many buyers and sellers exchanging similar commodities and its price is fixed by the market forces, demand, and supply, and a single firm cannot cause an impact over the price or market value of the homogenous product. This structure of the market is called perfect competition.

Question

C2) Consider an industry with only two firms: firm A and firm B. The industry's inverse demand is
P(Q) = 400 - ¹1/Q,
10
where P is the market price and Q is the total industry output. Each firm has a marginal cost of $10. There are
no fixed costs and no barriers to exit the market.
a) Suppose that the two firms engage in Cournot competition. Find the equilibrium price PNE in the
industry, the equilibrium outputs QANE and QBNE, as well as the profits NEA and NEB for each firm.
marks]
b) Suppose the two firms engage in Stackelberg competition, with firm A moving first, and firm B
moving second. Find the equilibrium price PS in the industry, the equilibrium outputs QS and QBS, as
well as the profits π and TSB for each firm.
в
c) For this subquestion only, suppose that firm B has a fixed cost of $200 000: What will firm B's
optimal decision be, and what will be the resulting market structure?
Now assume that instead of having two firms in the market, we have a monopoly facing the inverse demand
P(Q): = 400-10Q. The monopoly's marginal cost is $10.
d) Find the price PM and the quantity QM that the monopoly will optimally choose. Find the monopoly
profit лM.
e) Suppose that the monopoly described in (d) can first degree price discriminate. Find (calculate) the
Monopoly's quantity, price, profit, the consumer surplus and the deadweight loss in this case. Draw a
representative graph here.

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