PLEASE SOLVE ONLY PART (iv): B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. **Problem (2):** In a market with demand \( Q = 780 - p \), there are 3 identical firms, A, B, and C; each with a total cost function \( TC(Q) = 3Q^2 \). Calculate the market price under each of the 5 scenarios below, and rank/order the Consumer Surplus in each scenario (don’t calculate each CS; just rank them):(i) **Competition**: They compete in quantities with each other (Cournot-Nash equilibrium). Firms have the same MCs; the Best Response equations are symmetrical, resulting in a symmetric solution with \( q_A = q_B = q_C \) as the Cournot-Nash equilibrium.(ii) **Collusion**: They collude as though they are all plants of the same single multi-plant monopoly.(iii) **Duo Competition with A**: B and C act as two plants of a single multi-plant monopoly “B+C”, which competes in quantities (Cournot competition) against A.(iv) **Dominant Firm Model**: B and C jointly form the fringe supply, and A is the dominant firm.(v) **Perfect Competition**: They act as perfectly competitive firms, aiming to maximize total surplus and minimize DWL - their joint MC serves as the “market supply” for the competitive market.

The Dominant Firm Model is a market structure where one firm, known as the dominant firm, holds a significant market share and has the power to influence and set the market price. Other smaller firms, known as fringe firms, adjust their output in response to the dominant firm's decisions. The dominant firm maximizes its profit by choosing an output level that affects the overall market equilibrium.Scenario (iv): Dominant firm modelExplanation:If firms B and C jointly form the fringe supply and firm A is the dominant firm, firm A will choose the output level that maximizes its total profits, given the supply curve of the fringe firms. In this case, firm A will produce 1900 units of output, while firms B and C will each produce 933 units of output. This results in a market price of p = 950.In the scenario described, we are dealing with the Dominant Firm Model, which is a market structure where one firm (in this case, firm A) is significantly larger and more powerful than the other firms in the market (firms B and C, forming the fringe supply). The dominant firm essentially has the ability to set the market price by determining its own level of output.Dominant Firm (Firm A):Objective: The dominant firm's primary objective is to maximize its total profit.Decision Variable: The decision variable for the dominant firm is the level of output it chooses to produce.Fringe Supply Firms (Firms B and C):Joint Supply: Firms B and C are considered as a fringe supply, meaning they act collectively in response to the market conditions set by the dominant firm.Supply Curve: The supply curve of the fringe firms represents the relationship between the market price and the quantity they are willing to supply.Market Equilibrium:Output Decisions:Firm A, being the dominant firm, chooses its output level to maximize its total profit. In this case, it decides to produce 1900 units of output.Firms B and C, as fringe supply firms, collectively respond to the market conditions set by firm A. Each of them produces 933 units of output.Market Price Determination:The combined supply from firms A, B, and C intersects with the market demand curve, determining the market price. Since firm A is the dominant firm, its output level largely influences this intersection.The equilibrium market price (p) is determined to be 950 units.Outcome:Profit Maximization: Firm A's output decision of 1900 units is the level that maximizes its total profit, given the supply curve of the fringe firms.Output Distribution: Firms B and C each produce 933 units, which is the quantity determined by the market conditions set by the dominant firm.Market Price: The market price settles at 950 units, reflecting the equilibrium between the dominant firm's output and the collective output of the fringe supply.In summary, in the Dominant Firm Model, the dominant firm has the power to set the market price by determining its output level, and the fringe supply firms adjust their production accordingly. The result is an equilibrium where the dominant firm maximizes its profit, and the market price is established based on its output decision.If firms B and C jointly form the fringe supply and firm A is the dominant firm, firm A will choose the output level that maximizes its total profits, given the supply curve of the fringe firms. In this case, firm A will produce 1900 units of output, while firms B and C will each produce 933 units of output. This results in a market price of p = 950.

Business

Economics

PROBLEM (2) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q². Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don't calculate each CS; just rank them); (i) (See textbook's Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MC's, hence the Best Response equations are symmetrical; hence there is a symmetric solution with qa = q³ =qc as the Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly "B+C", which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. (v) They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the "market supply" for the competitive market.

PROBLEM (2) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q². Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don't calculate each CS; just rank them); (i) (See textbook's Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MC's, hence the Best Response equations are symmetrical; hence there is a symmetric solution with qa = q³ =qc as the Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly "B+C", which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. (v) They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the "market supply" for the competitive market.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Three firms with identical marginal cost of 30 compete in a market with inverse demand of P = 50 - 8Q. If the firms behave as the Cournot model suggests, what is the pass through rate for a change in marginal cost?
Consider a market where two firms produce the same product, and compete by choosing the price to charge consumers. There are no capacity constraints and no fixed costs. Consumers purchase from the firm that charges the lowest price, Pmin Aggregate demand is given by Q(Pmin) = 600 – 30pmin. Both firms have marginal costs of c = 15. What is the aggregate quantity produced in this market? And what price do consumers pay? (a) p₁ = = 15, p2 = 20, Q = 150 (b) P1 = P2 = 15, Q = 150 (c) P₁ = P₂ = 20, Q = 0 (d) p₁ = 10, P2 = 15, Q = 300 (e) None of the above options is correct.
Suppose that firms A and B have the same product in the same market, where Qd = Qa + Qb = 300 - 2p is demand And the firms have a simple cost curves of TCa = 5Qa and TCb = 10Qb Find Cournot Equilibrium & Find the Stackelberg equilibrium if A is the leader. Thanks!
Two firms, Incumbent & Entrant, can produce the same good. The market demand for the good is given by P = 180 – Q, where P is the market price and Q is the market quantity demanded. The firms must pay w = 45 per unit of output for labour and r = 45 per unit of output for capital (one unit of capital is used per unit of output), but Incumbent may choose capacity KI units of capital before Entrant decides whether to enter the market. Suppose firms each have fixed costs FI =600, FE=500. Incumbent chooses (as a Stackelberg leader) capacity KI equal to the monopoly profit- maximizing quantity. When you answer the following questions, show your work. a. Would Incumbent be able to prevent entry by choosing capacity KI equal to the monopoly profit-maximizing quantity? Explain. b. What is the Incumbent’s equilibrium choice of capacity KI in this Dixit game? c. Does the Incumbent’s choice of capacity KI in part (b) qualify as predatory conduct (here, limit output)? Explain.
Exercise 6.8. Two companies with cost functions C1 (q1 )=5q1 and C2 (q2)= 0.5 q2 ² supply the to the same market. If the inverse market demand function is given by P = 100 - 0,5Q , where Q = q₁ + q₂ , find a) The production level of each firm, the price and the profits if the companies compete according to the Cournot model. (b) The level of production of each undertaking, the price and the profits if the undertakings agree to jointly maximise their profits. Show the results with the help of graphs.
When the number of competing firms is small in a market, is this market necessarily different from a perfectly competitive market in terms of market power and efficiency? Develop your in-depth analysis and argument on the basis of relevant economic theory or models. Also discuss and explain how market power can empirically and practically (from a competition policy point of view) be assessed.
E3
For each scenario in the following table, determine which market model best describes the scenario. Then identify the number of firms, the type of product, and the ease with which new firms can enter the market under this market structure. Scenario Hundreds of colleges serve millions of students each year. The colleges vary by location, size, cost, and educational quality, which allows students to match schools to their diverse preferences. Hundreds of high school students who require tutoring in algebra choose among dozens of tutoring companies offering similar services. The taxi companies on all the licences granted by the city. Consumers don't care which taxi company Only one pharmaceutical company has a government patent to sell an experimental drug Number of Firms Type of Product Entry Market Model
0:29:15 Suppose that the market demand for a certain product is given by P = 670 – Q. where Qis total industry output. There are only three firms F, F,, F, that manufacture that product. The three firms have the following marginal costs: c = 32, c2 = 34 and C3 = 36. The leader (F) makes a production decision q1. F2, after observing the quantity chosen by F chooses its own quantity q2. Finally F3, after observing the quantities chosen by F, and F, chooses its own quantity q3. a) Determine the output levels that will be produced in a Stackelberg -Nash equilibrium 91 = 93 = b) Determine the price level in such an equilibrium P= c) Determine the profit levels in such an equilibrium U1 = uz=
Using the Surplus Approach, describe how tendencies for concentration emerge from the regular functioning of competition between capitalist firms.
STEP BY STEP PLEASE
A market consists of a dominant firm and a number of fringe firms. The followings are the information about these firms. Total market demand: QALL=300 – (2.5) P The competitive fringe supply function (total): QF=2P-12 The dominant firms marginal cost function: MC = 12 + (1⁄2) QD. a) What is the equilibrium price set by the dominant firm? b) How much will the competitive fringe supply to the market at the price found in question (a)? Show the answers graphically.