Question 22 Consider the following Cournot duopoly. Both firms produce a homogenous good. The demand function is Q = 100-P, where is the total quantity produced. Firm 1's marginal cost is MC1 = 91. Firm 2's marginal cost of production is MCH = 4 with probability 0.25 and MC₂ = 2 with probability 0.75. Firm 2 knows its own cost function and firm 1's cost function. Firm 1 knows its own cost function and the probability distribution of firm 2's marginal cost. What is the market clearing price? 41/2 215/4 167/4 if the cost is high and 155/4 if the cost is low 167/4 if the cost is high and 163/4 if the cost is low

Question 22 Consider the following Cournot duopoly. Both firms produce a homogenous good. The demand function is Q = 100-P, where is the total quantity produced. Firm 1's marginal cost is MC1 = 91. Firm 2's marginal cost of production is MCH = 4 with probability 0.25 and MC₂ = 2 with probability 0.75. Firm 2 knows its own cost function and firm 1's cost function. Firm 1 knows its own cost function and the probability distribution of firm 2's marginal cost. What is the market clearing price? 41/2 215/4 167/4 if the cost is high and 155/4 if the cost is low 167/4 if the cost is high and 163/4 if the cost is low

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Consider the following Cournot model. The inverse demand function is given by p = 30 –Q, where Q = qi + q2. Firm 1's marginal cost is $6 (c1 = 6). Firm 2 uses a new technology so that its marginal cost is $3 (c2 = 3). There is no fixed cost. The two firms choose their quantities simultaneously and compete only once. (So it’s a one-shot simultaneous game.) Answer the following questions. а. Derive Firm 1 and Firm 2's reaction functions, respectively. b. Solve the Nash equilibrium (qı", q2"). What is the equilibrium price and what is the profit level с. for each firm?
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Suppose the airline industry is an oligopoly with two competing firms, VolAir and ClearJet. Assume each airline sells tickets that are virtually identical and customers have no loyalty to either airline. Possible pricing outcomes in the market are displayed on the graph to the left, while the two airlines best response functions according to the Cournot model are shown on the graph to the right. Price per ticket MR Qc Tickets per year Demand MC VolAir sells 600, and ClearJet sells 600. VolAir sells 480, and ClearJet sells 1,200. VolAir sells 1,200, and ClearJet sells 480. Tickets sold by Clearlet VolAir sells 750, and ClearJet sells 750. 2000 1200- 0 VolAir's best response Clearlet's best response Suppose VolAir's best response function is Qv= 1,200-0.60c and ClearJet's best response function is Qc = 1,200- 0.607. How many tickets does each airline sell in the Nash equilibrium? 2000 1200 Tickets sold by VolAir
I selected answer "B", which was surprisingly incorrect. What say you? What would you pick as the correct choice?
There are two firms in a market and they compete in a Nash-Cournot manner. Firm 1 faces the demand function p1(g1,92) = 200 - 91 - 92, and has a total cost function TC1 = (91)2. Firm 2 faces the demand function p2(91,92) = 160 - 92 - 91, and has a total %3D cost function TC2 = (92)2. Answer each of the following questions. a. Find the Nash-Cournot equilibrim output and price v for firm 1. b. Find the Nash-Cournot equilibrim output v and price v for firm 2.
2. Four firms (A, B, C, and D) play a pricing game (i.e. Bertrand). Each firm (i) may choose any price Pi from 0 to ¥, with the goal of maximizing its own profit. Firms A and B have MC = 10, while firms C and D have MC = 20. The firms serve a market with the demand curve Q = 100 – P. All firms produce exactly the same product, so consumers purchase only from the firm with the lowest price. If multiple firms have the same low price, consumers divide their quantities evenly among the low-priced firms. Assume the firms choose price simultaneously. a. There are many equilibria in this simultaneous-move pricing game. Provide one equilibrium combination of prices, and argue that no firm has a unilateral incentive to deviate from these prices. Now assume firm A chooses price first. Firm B observes this choice and then chooses its own price second. Firm C chooses price third, and firm D chooses price last. b. Again, there are many equilibria in this sequential-move pricing game.…
Q. 3
Consider the following Cournot duopoly. Both firms produce a homogenous good. The demand function is Q = 100 – P, where Q is the total quantity produced. Firm 1's marginal cost is MC1= 10. Firm 2's marginal cost of production is MC5 = 492 with probability 0.5 and MC5 = 29, with probability 0.5. Firm 2 knows its own cost function and firm 1's cost function. Firm 1 knows its own cost function and the probability distribution of firm 2's marginal cost. What is the quantity produced by firm 1 in a Bayesian Nash Equilibrium? 980/23 155/4 1660/43 980/23 if the cost is high and 155/4 if the cost is low
Company A and Company B are competing oligopolists. Both companies are considering increasing or maintaining their prices. The payoff matrix shows the profits of the companies in millions based on their possible actions.. Company A Increase Price Company B Increase Price Maintain Price $50, $40 Maintain Price $55, $45 $35, $30 $60, $35 The government offers a $5 million subsidy to maintain current pricing. What is the expected outcome of the new payoff matrix, given the subsidy? The Nash equilibrium changes, and both companies will maintain their prices The Nash equilibrium changes, and both companies will increase their prices. The Nash equilibrium remains the same, and both companies will increase their prices Company A will increase its price, while Company B maintains its price. Company A will maintain its price, while Company B increases its price
Consider a duopolistic market in which the two identical firms compete by selecting their quantities. The inverse market demand is P(Q) = 210−Q and each firm has a marginal cost of $15 per unit. Assume that fixed costs are negligible for both firms. Cournot Model Determine the Nash-Cournot equilibrium for this market.(Enter your responses rounded to two decimal places.) Firm 1's quantity: q1= ? units. Firm 2's quantity: q2 = ? units. Market price: P= ? Stackelberg Model Determine the Nash-Stackelberg equilibrium for this market, assuming that Firm 1 is the Stackelberg leader. (Enter your responses rounded to two decimal places.) Firm 1's quantity: q1 = ? units Firm 2s quantity: q2 = ? units. Market price: P = ?
Two firms produce a homogeneous good and compete in price. Prices can only take integer values. The demand curve is Q = 6 p, where p denotes the lower of the two prices. The lower - priced firm meets all the market demand. If the two firms post the same price p, each one gets half the market demand at that price, i. e., each gets (6p)/2. Production cost is zero.a) Show that the best response to your rival posting a price of 6 is to post the monopoly price of 3. What is the best response against a rival's price of 4? of 5?
QUESTION 13 Consider a market where two firms (1 and 2) produce differentiated goods and compete in prices. The demand for firm 1 is given by D₁(P₁, P2) = 140 - 2p1 + P2 and demand for firm 2's product is D2 (P1, P2) 140 - 2p2 + P1 Both firms have a constant marginal cost of 20. What is the Nash equilibrium price of firm 1? (Only give a full number; if necessary, round to the lower integer; no dollar sign.)