Q2: Firms A and B are two firms supplying products in two separate differentiated goods markets. Equations (1) and (2) give the total cost functions of the two firms: Firm A: TC=2Q -(1) Firm B TC=10+2Q- -(2) Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000. Use the information given about firms A and B and appropriate diagrams/figures to explain how the equilibrium for both firms will change if a rival company increases its prices.

Q2: Firms A and B are two firms supplying products in two separate differentiated goods markets. Equations (1) and (2) give the total cost functions of the two firms: Firm A: TC=2Q -(1) Firm B TC=10+2Q- -(2) Each firm has the ability to produce a maximum quantity of 80,000 units in ten batches of 8,000. Use the information given about firms A and B and appropriate diagrams/figures to explain how the equilibrium for both firms will change if a rival company increases its prices.

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

Suppose the Boston to Philadelphia airline route is serviced by three airlines – US Airways (Firm A) and JetBlue (Firm B) and Continental (Firm C). The demand for airline travel between these two cities is Q = 150 – p. The cost function is C(Q) = 30Q. The cost function is the same for all three airlines. Assume that the three airlines are making investments in airline capacity. In other words, they are simultaneously choosing quantity. (Cournot Competition) Derive US Airways’ residual demand function given JetBlue’s output, qB, and Continental’s output, qC. What is the Marginal Revenue for US Airways? Derive US Airways reaction function Derive the market equilibrium quantity, Q*, price, p*, and Profit.
Two firms (called firm 1 and firm 2) are the only sellers of a good for which the demand equation is Here, q is the total quantity of the good demanded and p is the price of the good measured in dollars. Neither firm has any fixed costs, and each firm’s marginal cost of producing a unit of goods is $2. Imagine that each firm produces some quantity of goods, and that these goods are sold to consumers at the highest price at which all of the goods can be sold. A Cournot equilibrium in this environment is a pair of outputs (q1, q2) such that, when firm 1 produces q1 units of goods and firm 2 produces q2 units of goods, neither firm can raise its profits by unilaterally changing its output. Find the Cournot equilibrium. Determine whether the price at which the goods are sold exceeds marginal cost.
consider a market with inverse demand P(Q) = 10 − Q and two firms with cost curves C1(q1) = 2q1 and C2(q2) = 2q2 (that is, they have the same marginal costs and no fixed costs). They compete by choosing quantities. Suppose that Firm 1 chooses quantity first and is able to credibly commit to this choice. Then firm 2 choose its quantity after observing firm 1’s quantity. In the SPNE of this game, what is the price faced by consumers?- p = 3- p = 4- p = 5- p = 6- p = 7
Continuing from the previous questions where you are a manager of a firm is the exclusive manufacturer of a unique pair of rainbow shorts with demand and cost functions that are Q=100−2P; C=40+2Q2. Now assume that the firm incurs a one-time cost of $10 for a zoning violation. What is the price that the manager should now charge to maximize profits? (Just give the number, no need to include "$")
The total cost equation for a firm producing two products is TC(Q1, Q2) = 25 + Q12 + 4Q22 + 5Q1Q2 (d) Suppose that the firm is currently producing 5 units of Q1, and 10 units of Q2, What is the firm's total cost of production? e) Suppose that the firm divests itself of the division selling Q1 to a competitor. How much will it cost the firm to continue producing 10 units of Q2? What is the total cost of producing both Q1 and Q2 if the firm producing Q1 produces 5 units?
PakPerfect Inc. estimates equation of its total costs of production as TC = 500 + 10Q + 5Q2 and market demand for its product as Qd = 105 – (1/2) P, where Q is quantity in units and P is price in Pak$. Write the equations of the firm’s costs, as a function of Q: Average Total Cost ATC Average Variable Cost AVC Average Fixed Cost AFC Given above costs can you determine what will be the firm’s production in Stage 1? What is the breakeven price and breakeven quantity for this firm? What is the shutdown price and quantity for this firm? Draw the firm’s costs in a graph as per your determination in (a). Label the breakeven and shutdown price and quantity using information in (b) and (c) above. Given the market price of Pak$ 50 how many units should the firm produce? how many firms are competing in this market in short-run? How many firms will be in the industry in the long-run? How do you interpret the profit or loss condition of PakPerfect? Use a two-panel graph of the Market and…
4. A vertically integrated automobile company has an upstream engine division and a downstream assembly division. The demand for the company's cars is given by Q = 20-P. Each car requires one engine. The downstream division's total cost of assembling cars is TCD(Q) = 4Q. The upstream division's total cost of producing engines is TCv (Q) = Q². (a) Suppose that there is no outside market for engines. What is the price and quantity of cars produced by the company? (b) Suppose that there is no outside market for engines. What should be the transfer price for engines? [Hint: the transfer price of an engine should equal the marginal cost of engine production at the optimal quantity.] (c) Suppose that there is a competitive outside market in which the price of an engine is 12. What is the price and quantity of cars produced by the company? (d) Suppose that there is a competitive outside market in which the price of an engine is 12. What is the quantity of engines that the company buys or…
Rajiv owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property, making a large crater. The event attracts scientists and tourists, and Rajiv 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 (MR) curves for the two markets. Rajiv's marginal cost of providing admission tickets is zero. PRICE (Dollars per ticket) 20 18 16 14 12 10 0 0 3 Market A D₁ MR 6 9 12 15 15 21 24 27 30 QUANTITY (Admission tickets) ? PRICE (Dollars per ticket) 20 18 16 0 0 3 Market B MR D 6 9 12 15 18 21 24 27 QUANTITY (Admission tickets) 30
Suppose that the market demand curve for your product is given by: Q=$25-0.5P. Assume that the marginal cost and average total cost equal $34 for all levels of production. The marginal revenue curve would be given by the equation: MR= (Carefully enter your response as an algebraic expression, using the proper notation in the proper format.) The adjacent figure shows the demand curve (D) and the marginal revenue curve (MR) for your product. Using the line drawing tool, plot the marginal cost (MC) and the average total cost (ATC) curves. Using the point drawing tool, show the profit-maximizing price and quantity for your firm. Carefully follow the instructions above and only draw the required objects. Economic profit earned by your firm will be equal to $. Price (dollars/unit) $60 $50- $40- $30- $20- $10- $0- 0 MR 12 Quantity (units) 16 D 20
2. A local business has asked an economic development consultant to help it decide if it can continue to compete with the other businesses in a city's downtown area in a very competitive market. Using historical data on costs, the consultant finds that the total cost function for this business is TC = 10 + Q + .1Q² where Q is amount of output this business produces. Given this TC function, we know that the marginal cost (MC) of production is P = 1+.2Q. a. What are the fixed costs for this business? What is the business's variable cost function? What is the average total cost function? b. Calculate the level of output and the price of a unit of output in long run equilibrium. Sketch a graph of your solution (you do not need to precisely graph the ATC function, you just need to include a plausible version of it). c. Currently, the price of the product is $2.50 because of a recession that has hit the area. The consultant thinks the shop should immediately cease operations. Would you agree…
The Lead Zeppelin Company produces powered and steerable lighter-than-air craft. The company’s airships are specially lined and are therefore safer than normal dirigibles. The table below shows the weekly production of dirigibles, along with the associated Average Cost and Total Revenue figures (the Average Cost and Total Revenue figures are actually in thousands of dollars, so the $15 represents $15,000, but we have left off the zeros to save space). Quantity Average Cost Total Cost Total Revenue 0 -- 0 $0 1 $15 15 $10 2 $9 18 $20 3 $8 24 $30 4 $8.50 34 $40 5 $9 45 $50 6 $10 60 $60 7 $12 84 $70 The Lead Zeppelin Company has decided that it will produce at least 1 dirigible. Now the question becomes, how many more dirigibles should it produce to make as much profit as possible? Use the profit-maximizing rule to explain how many dirigibles the Lead Zeppelin Company should produce to…
Eric owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property, making a large crater. The event attracts scientists and tourists, and Eric 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 (DD) curves and marginal revenue (MRMR) curves for the two markets. Eric's marginal cost of providing admission tickets is zero. PRICE (Dollars per ticket) 20 18 16 9 09 2 0 0 1 Market A MR 2 3 4 5 6 7 8 QUANTITY (Admission tickets) Pricing Policy Nondiscriminatory Discriminatory D 0 10 Total Revenue (Dollars) PRICE (Dollars per ticket) 20 18 18 14 12 10 8 4 2 0 0 1 low Market B Imagine that at first, Eric charges the same price of $8 per admission in both markets so that the total number of admissions demanded is Tickets. Imagine now that Eric decides to charge a different price in each market. To maximize revenue, Eric…