PROBLEM (3) Consider the differentiated goods Bertrand price competition model where firms A and B produce similar goods and sell them at på and på. The demand for each firm's product is given by qA = 400-3pA - 2 pв and qв = 400 - 3pв - 2pA, and MCA(qA) = ATCA(qA) = 40 and MCв(qв) = ATCв(qB) = 40. (a) Are the two goods substitutes or complements? Do the firms want to charge higher prices or lower prices, the higher the opponent's price? (Is the best response price increasing (or decreasing, or neither) in the opponent's price?) Calculate the Bertrand equilibrium prices. (b) Now suppose the firms -instead of competing to maximize their own individual profits- decide to "collude" and charge prices to maximize their joint profits (sum of their profits). What would be each firm's optimal price? Are these prices greater/smaller/the same compared to the prices in (a) ?

PROBLEM (3) Consider the differentiated goods Bertrand price competition model where firms A and B produce similar goods and sell them at på and på. The demand for each firm's product is given by qA = 400-3pA - 2 pв and qв = 400 - 3pв - 2pA, and MCA(qA) = ATCA(qA) = 40 and MCв(qв) = ATCв(qB) = 40. (a) Are the two goods substitutes or complements? Do the firms want to charge higher prices or lower prices, the higher the opponent's price? (Is the best response price increasing (or decreasing, or neither) in the opponent's price?) Calculate the Bertrand equilibrium prices. (b) Now suppose the firms -instead of competing to maximize their own individual profits- decide to "collude" and charge prices to maximize their joint profits (sum of their profits). What would be each firm's optimal price? Are these prices greater/smaller/the same compared to the prices in (a) ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Consider a homogeneous product industry with three firms 1, 2, and 3 that engage in simultaneous…

A: Step 1:a. Given informationIn a simultaneous quantity competition, each firm chooses its quantity…

Q: Please include step by step working and derivation of any methods used in the following questions:…

A: Since you have asked multiple question, we will solve the first question (Part A and Part B) for…

Q: The United Nations Human Development Report gives the following data for real GDP per person in…

A: Based on the population mortality rate, life expectancy at birth is a statistical indicator of the…

Q: There are two soda firms Apple and Dell in Cournot completion . The market inverse demand is P = 32…

A: Cournot competition is an microeconomic model that explains the behavior of firms operating in an…

Q: Consider a homogeneous product industry with three firms 1, 2, and 3 that engage in simultaneous…

A: I hope you can understand

Q: Output is homogenous and the demand curve P = 448 - Q. There are two firms with identica %3D costs…

A: As it is given to us that P=448-Q C=Qi^2 MC=2Qi

Q: Based on the best available econometric estimates, the market elasticity of demand for your firm’s…

A: Elasticity of demand = -2.5Marginal cost of production = 225Average total cost (current ) = 300 We…

Q: Consider a setting of two competing firms F1 and F2. Both firms maximize their profits and provide a…

Q: Practice Problem 1: Two firms produce homogeneous goods with constant marginal costs c = 2. The…

A: Monopoly is an one firm model. Cournot-Duopoly is 2 firms model. Monopoly profits, price and…

Q: Ticket Price, Cost ($) 10 8 00 D₁ = Dx+DA MC = ATC MRT 20 28 38 10 0 Adult Tickets DK 6 4 MC = ATC…

Q: 1 a) Consider a homogeneous goods industry where two firms operate and the linear demand is given by…

A: Since you have asked 'Multiple' question, we will solve the first question (Part A and Part B) for…

Q: Consider a market with two identical firms, Firm A and Firm B. The market demand is: 1 P = 100 –Q…

A: Since you have asked a question with multiple subparts, we answer the first three for you. If you…

Q: Suppose that a monopolist offers two different products with demand functions P1 = 56 – 4q1 P2 = 48…

A: Profit is the difference between total cost and total revenue from both demand function .…

Q: The demand for a monopolist's two products are determined by the following set of equations…

A: Answer -

Q: a)Consider a homogeneous goods industry where two firms operate and the linear demand is given by…

A: Market demand curve: p(y1 + y2 ) = a - b(y1 + y2 )…

Q: The two major producers in the beer industry, Anheuser-Bush (Firm 1) and Grupo Modelo (Firm 2) are…

A: For the level of output and profits when Firm 2 cheats and Firm 1 colludes, firstly we find the…

Q: PROBLEM (3) Consider the differentiated goods Bertrand price competition model where firms A and B…

A: An oligopoly is a type of market structure where there are a few dominant firms that control a…

Q: Consider a setting of two competing firms F1 and F2. Both firms maximize their profits and provide a…

Q: TB MC Qu. 09 - 92 Consider two firms competing... Consider two firms competing to sell a homogeneous…

A: The two firms compete to sell a homogenous productThe inverse demand function is Each firm's cost…

Q: (5) For each situation, solve for the Bertrand-Nash Equilibrium (differentiated Product). 5a)…

A: To calculate Bertrand - Nash equilibrium when there are different marginal costs:-…

Q: (Multi-Variable Unconstrained Optimization - pete in a market with inverse demand given by p = 10 -…

A: Inverse demand function: P = 10-2q1-2q2 Firm 1 marginal cost = 2q1 Firm 2 marginal cost = 4q2

Q: q1(p1, p2) = 1 − 0.5p1 + 0.3p2 q2(p1, p2) = 1 − 0.5p2 + 0.3p1 Assume that costs are given by c1…

Q: Suppose that two firms are competing in a heterogeneous market where the demand functions of firm 1…

A: Detailed explanation:(a) Calculate the Optimal Profits for the Two Firms When They Compete in…

Q: Tim's Tires sells tires under the firm's own brand name and private label tires to discount stores.…

A: Price discrimination is a pricing strategy through which a firm charges different prices for similar…

Q: I understand the other parts. Can you please answer part d and e below? Each of two firms, firms 1…

A: (d)It is given that,Inverse demand function: P = 120 – Q where Q = q1 + q2.Cost function:Firm 1:…

Q: Market A Market B 20 20 18 18 18 18 14 14 Slope: -0.67 12 12 10 10 Slope: -0.67 4 4 2 MR MR. O 3 0 0…

A: We are going to use Microeconomics concepts such as price discrimination and profit maximisation…

Q: (In the following problems, do not use the letter A, but substitute it with A=1.5) Suppose that two…

A: (a) Optimal Profits when Competing in Prices Demand Functions:- q1 = 1.5 - 3p1 + 2p2 - q2 = 1.5 -…

Q: Q1: Firms A and B are two firms supplying products in two separate differentiated goods markets.…

A: Costs refer to the expenses that are incurred in the process of production of goods or services.…

Q: . Consider a market with inverse demand P(Q) = 100 Q and two firms with cost function C(q) = 20q.…

A: ANSWER STEP-1 (1) Consider a market with inverse demand P(Q) = 100 Q and two firms with cost…

Question

PROBLEM (3) Consider the differentiated goods Bertrand price competition model where firms A and B
produce similar goods and sell them at på and pв. The demand for each firm's product is given by
qA = 400 - 3pA - 2 pв and q³ = 400 - 3pв - 2рA, and MC^(q₁) = ATC₁(q₁) = 40 and MC³(q³) = ATC³(qb) = 40.
(a) Are the two goods substitutes or complements? ♣ Do the firms want to charge higher prices or lower
prices, the higher the opponent's price? (Is the best response price increasing (or decreasing, or neither) in the
opponent's price?) ♣ Calculate the Bertrand equilibrium prices.
(b) Now suppose the firms -instead of competing to maximize their own individual profits- decide to "collude"
and charge prices to maximize their joint profits (sum of their profits). What would be each firm's optimal
price? Are these prices greater/smaller/the same compared to the prices in (a) ?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define Oligopoly

VIEW

Step 2: Explain whether goods are complements or substitutes.

VIEW

Step 3: Calculate Bertrand equilibrium prices.

VIEW

Step 4: Find the optimal price and profits.

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 9 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

The next three problems are from Unit 10. You are provided with a pair of demand and cost functions. P=20,000-15.60 TC = 400,000 + 4640 Q + 100 Use the above functions and derive the maximum profits for the firm: Optimal Q = Optimal P = Optimal TR = Optimal profits - =
Consider the differentiated goods Bertrand price competition model where firms A and B produce similar goods and sell them at pA and pB. The demand for each firm’s product is given byqA =60−2pA +pB andqB =60–2pB +pA ,and there are NO costs of producing either good (all costs are 0). (a)Calculate the (Bertrand) equilibrium prices and the net profits of each firm (b) Now suppose that -instead of competing to maximize their own individual profits- the firms decide to “collude” and set prices pA and pB to maximize their joint profits (sum of their profits). What would be each firm’s optimal price and net profits? Compare these prices and profits with what you found in (a) (greater/smaller/the same?).
Question 3:Suppose the inverse demand for a good is given by P = 50 – 4Q, where Q is the totalquantity supplied by all firms in the market. Suppose each firm in the market has a constantmarginal cost of 18.Q3 a) Assume the market consists of two firms that set their quantities simultaneously.Calculate the duopoly levels of production and the equilibrium price. Q3 b) Now assume firm 1 chooses its production level before firm 2 does. What will be theequilibrium quantities, price and profits in this case?Q3 c) Now instead suppose that the two firms compete over prices rather than quantities.What will be the equilibrium price and profits of firms 1 and 2 in this case? Finally, if firm 1manages to lower its marginal cost to 14, what will be the new equilibrium price, quantitiesand profits?
Juanita owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on her property, making a large crater. The event attracts scientists and tourists, and Juanita decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (D) curves and marginal revenue (MIR) curves for the two markets. Juanita's marginal cost of providing admission tickets is zero.
a)Consider a homogeneous goods industry where two firms operate and the linear demand is given by p(y1 + y2 ) = a - b(y1 + y2 ), where p is the market price, and y1 (y2) is the output produced by firm 1 (2). There are no costs for firm 1 or firm 2. Derive the best responses (reaction curve) for firm 1 and firm 2. Explain the term best response (reaction curve). Illustrate the best responses in a diagram. b) For the case in (a) determine the Cournot equilibrium (Nash equilibrium in quantities) when firm 1 and firm 2 compete simultaneously in quantities. How large are firm 1’s and firm 2’s profits? What is the industry output? c) Suppose the inverse demand curve in a market is D(p) =a-bp, where D(p) is the quantity demanded and p is the market price. Firm 1 is the leader and has a cost function c1(y1)=cy1 while firm 2 is the follower with a cost function c2(y2 )=. Firm 1 sets its price to maximise its profit. Firm 1 correctly forecasts that the follower takes the price leader’s…
Hand written solutions are strictly prohibited
Firm 1 and Firm 2 produce q1 and q2 units of a homogeneous good. Firm 1 is located upstream from Firm 2, and also produces z units of pollution. Costs for the two firms are given by: C1(41, 2) = 91 + (z – 1)? C2(42, 2) = q2 + 0.1zq2 Market demand for the good is given by P(qı + q2) = 2 – qi – 42. (a) Set up the profit maximization problem for each firm. (b) How much will firm 1 choose to pollute? (c) What are the equilibrium quantities of output chosen by each firm? (d) Suppose there is a market for pollution. That is, firm 1 must pay firm 2 Pz for each unit it pollutes. What is the equilibrium price of pollution? How much does firm 1 pollute? How do the equilibrium quantities of pollution and output in parts (b) and (c) compare to this new equilib- rium? (e) How do the equilibrium quantities of output in part (c) compare to what you would observe if pollution was banned? (f) How do the equilibrium quantities of pollution and output in parts (b) and (c) compare to what you would…
Consider an industry with N firms that compete by setting the quantities of an identical product simultaneously. The resulting market price is given by: p = 1000 − 4Q. The total cost function of each firm is C(qi) = 50 + 20qi . (a) Derive the output reaction of firm i to the belief that its rivals are jointly producing a total output of Q-i . Assuming that every firm produces the same quantity in equilibrium, use your answer to compute that quantity. (b) Suppose firms would enter (exit) this industry if the existing firms were making a profit (loss). Write down a mathematical equation, the solution to which would give you the equilibrium number of firms in this industry. You don’t have to solve this equation.
There are two firms, Firm 1 and Firm 2. The two firms’ products are viewed as identical by most consumers. The relevant cost functions are C(Q1) = 10 + 4Q1 and C(Q2) = 12 + 16Q2, and the market demand curve for product is given by P = 50 – 4Q. Instructions: Use no decimals. Use the average cost to calculate monopoly profits. Do not round values if used to complete other calculations. Complete the following table. Q1 Q2 P Profits F1 Profits F2 Duopoly competition Collusion
All problems below include an “unknown” parameter A, which is 1.5. Suppose that 2 firms are competing in a heterogeneous market whereby the demand functions of firm 1 and firm 2 are given by q1 = A − 3p1 + 2p2 and q2 = A − 3p2 + 2p1. Both firms have a marginal cost equal to 1. (a) [10] Calculate the optimal profits for the two firms when they compete in prices. (b) [20] If firm 1 spends an amount F to reduce its marginal cost to 0, what is the maximum value of F that it would be willing to pay? For the rest of the problem, suppose, instead, that firm 1 sets the quantity (q1) while simultaneously firm 2 sets the price (p2). (c) [15] Draw the two best response functions in a graph and indicate the Nash equilibrium. Be as detailed as possible in giving intuition. (Note: the graphs will be in the (p2, q1) space, but remember that you are not drawing any demand curves.) (d) [25] Compute both of the firms’ equilibrium prices, quantities, and profits. Which firm makes a higher profit?…
Question 1. In this question we begin by constructing a competitive market for a good, and then compare the outcome when supply is controlled by a single-price monopolist. Suppose that the demand for units of some beverage comes from households with the preferences over units of the beverage (x1) and expenditure on all other goods (x2) represented by the following utility function, U(x1,x2) = 800 In(x1) + x2 Each household has an exogenous income of I per period. The second 'good' is referred to as a 'composite' good and is an amount of money. We assume throughout that p2 = 1. (4 marks) Derive a household's ordinary demand functions, x1(P1, 1,1) and x2(P1,1,1) when they are price-takers in the market for the beverage. How large does the exogenous income need to be in order for the household to enjoy a positive amount of both 'goods'? i) (2 marks) Suppose there are 80 households who participate in the market for the beverage. Half of the households have an income of $1200 per period,…
Suppose the iceberg lettuce industry is a Cournot duopoly with two firms: Xtra Leafy (a) and Yummy Farms (y). Xtra Leafy produces q units of output and Yummy Farms produces qy units of output. Aggregate market output is Q = x + y. The (inverse) market demand schedule is: p = 176 - 2Q Both firms have identical cost structures: MC = MC₁ = ATC₂ = ATC₁ = $12 Find Xtra Leafy's Cournot reaction function of the form: 9x = a + bay Where "a" is the reaction function's intercept and "b" is its slope. Note: Please review the formatting instructions above. If any value is negative, be sure to include its negative sign. a. a= b. b = Hint: One of your answers will be negative. Think about why.