Presently, APlus Transport and Big Movers are the only suppliers of services that haul heavy construction equipment between jobs within the Midwest. No other suppliers have the equipment necessary to perform the service. The market inverse demand for these hauling services is given below. P= 4,030-40 where P is price per trip and Q is total number of trips per year. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC₁ = 30QA TVCB = 80QB a. Assume these two competitors operate as a two-firm Cournot duopoly. Find the reaction functions for each firm. b. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. c. Suppose Big Movers shuts down operations so that APlus now has a monopoly in this market. What is the price, quantity, and profits for APlus after this change? d. Summarize the results of your findings over the two possible outcomes. In your summary include price, quantity and industry profits. Comment on your results.
Presently, APlus Transport and Big Movers are the only suppliers of services that haul heavy construction equipment between jobs within the Midwest. No other suppliers have the equipment necessary to perform the service. The market inverse demand for these hauling services is given below. P= 4,030-40 where P is price per trip and Q is total number of trips per year. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC₁ = 30QA TVCB = 80QB a. Assume these two competitors operate as a two-firm Cournot duopoly. Find the reaction functions for each firm. b. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. c. Suppose Big Movers shuts down operations so that APlus now has a monopoly in this market. What is the price, quantity, and profits for APlus after this change? d. Summarize the results of your findings over the two possible outcomes. In your summary include price, quantity and industry profits. Comment on your results.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Presently, APlus Transport and Big Movers are the only suppliers of services that haul heavy
construction equipment between jobs within the Midwest. No other suppliers have the equipment
necessary to perform the service. The market inverse demand for these hauling services is given
below.
P= 4,030-40
where P is price per trip and Q is total number of trips per year. For simplicity, also assume that
neither firm has fixed costs. From company records, you are given the following variable cost
function for each firm:
TVC₁ = 300
TVCB = 80QB
a. Assume these two competitors operate as a two-firm Cournot duopoly. Find the reaction
functions for each firm.
b. Calculate the Cournot market equilibrium price-output solutions for each firm including their
respective profits.
c. Suppose Big Movers shuts down operations so that APlus now has a monopoly in this
market. What is the price, quantity, and profits for APlus after this change?
d. Summarize the results of your findings over the two possible outcomes. In your summary
include price, quantity and industry profits. Comment on your results.
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