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.

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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

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