Suppose Canon raised the price of its printers, but Hewlett-Packard (the largest seller) refused to follow. Two years later, Canon cut itsprice, and Hewlett-Packard retaliated with an even deeper price cut, which Canon was forced to match. For the next five years, Hewlett-Packard raised its prices five times, and each time, Canon followed suit within 24 hours.The model underlying the pricing behavior of these firms is the:Cartel modelO Perfect competition modelNonprice competition modelPrice leadership model

The correct option is: Price leadership model Explanation: The scenario outlined implies a pricing…

Answered: Suppose Canon raised the price of its…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A two-firm cartel producing industrial diamonds faces the following demand function: Q=120-10P The total cost function of each firm is TC1 = 4Q1 + 0.1Q12 and TC2 = 2Q2 + 0.1Q22 a, Find the output and profit of each firm and total profit of cartel that maximize total profits b, Find the output and profit of each firm and total profit of cartel that maximize total revenues
Suppose that all firms in an industry collude to reduce output, which raises the product price to $7.86 and requires the perfectly competitive firm in the figure to the right to reduce its output from 500 units to 200 units. What is the total dollar amount of this typical perfectly competitive firm's economic incentive to join the proposed cartel, assuming that after the fact, no firms cheat on the specified cartel agreement? Explain your reasoning. In the absense of collusion among the firms, the typical perfectly competitive firm's economic profits are average total cost. because price Using the rectangle drawing tool, show the amount of economic profits for the typical perfectly competitive firm if it joins the cartel Label this area 'Profits." Carefully follow the instructions above, and only draw the required object If ATC $5.33 at the reduced output of 200 units, then the typical firm's economic incentive to participate in the cartel is $(Enter your response as a whole number.)…
If Gulfstream and Bombardier, both producers of upscale jet airplanes, were to collude rather than compete, consumers could expect: Group of answer choices A) higher prices and higher quantities offered for sale. B) higher prices and lower quantities offered for sale. C) one firm to emerge as the price leader in the oligopoly. D) lower prices and lower quantities offered for sale. E) each firm to cheat on the cartel agreement.
2. Deviating from the collusive outcome Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $0.20 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together. (Dollars per can) PRICE 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0 0 Demand MC = ATC MR 90 180 270 360 450 540 630 720 810 900 QUANTITY (Cans of beer) Monopoly Outcome (2)
Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $1.20 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together. PRICE (Dollars per can) 2.00 1.80 1.60 1.20 1.00 0.80 0.60 0.40 + 0.20 + 0 Demand 0 40 80 MR MC ATC 160 200 240 250 320 360 400 QUANTITY (Cans of beer) Monopoly Outcome
Consider a duopolistic market with an inverse demand curve P(Q) = 460 − 4Qand constant marginal costs for each firm that are given by MC(Q) = 10.Assume fixed costs are negligible. The two identical firms are competing in this market by choosing their production quantities simultaneously. In the equilibrium, each firm produces 37.5 units and the prevailing market price is 160. How would the joint profits of these two firms change if they successfully formed a cartel? Change in joint profits: ? (Enter your answer rounded to two decimal places; include a negative sign if appropriate.)
Suppose that the central bank for this economy suddenly and unexpectedly decreases the money supply in an effort to reduce inflation. As a result of this unanticipated policy action, actual inflation falls to 3%. On the previous graph, use the black point (plus symbol labeled "B") to illustrate the short-run effects of this policy. Suppose that now, after a period of 3% inflation, households and firms begin to expect that the inflation rate will persist at the level of 3%. On the previous graph, use the purple line (diamond symbol) to draw SRPC₂, the short-run Phillips curve that is consistent with these expectations, assuming that it is parallel to SRPC₂- Finally, using the orange point (square symbol labeled "C"), indicate on the previous graph the new, long-run equilibrium for this economy. The inflation rate at point C is unemployment rate at point A. the inflation rate at point A, and the unemployment rate at point C is Was the central bank able to achieve its goal of lowering…
Airline Manufacturer A and Airline Manufacturer B are duopolists in their industry. Explain how the two firms could collectively benefit if they were to collude and form a cartel. Why might collusion be difficult?
Consider a market with two firms, Coke and Pepsi, that produce soft drinks. Both firms must choose whether to charge a high price ($1.25) or a low price ($0.65) for their soft drinks. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Coke's profits are in red and Pepsi's are in blue. Coke's dominant strategy is to pick a price of dominant strategy is to pick a price of $ What is the Nash equilibrium for this game? A. Coke and Pepsi will both choose a price of $1.25. B. Coke will choose a price of $1.25 and Pepsi will choose a price of $0.65. and Pepsi's O C. Coke will choose a price of $0.65 and Pepsi will choose a price of $1.25. D. Coke and Pepsi will both choose a price of $0.65. Price = $1.25 Pepsi Price = $0.65 Price = $1.25 Price = $0.65 $800 Coke $900 $800 $175 $175 $700 $900 $700
In the classic Bertrand model of oligopoly (e.g., a duopoly with no capacity constraints, product differentiation or innovation), price for each firm will be set: at the monopoly price above MC at MC below MC
Consider an industry that consists of 4 firms, all competing over the same market, given by the following demand equation: P=80-3Q All firms have the same Total Cost Function, given by: TC₁=10q,+2q Suppose the firms decide to collude and voluntarily restrict output and raise price, in order to increase profits. a) What price will be charged by the members of the cartel? Assume the head of the cartel is fair and distributes output q, equally among the 4 firms (since they have identical costs). b)What is the output of each individual firm? c) What is each individual firm's profit? We know that there is a built-in incentive for cartel members to cheat on the cartel. If, as a result, the cartel breaks down: d) What price will be charged in the market? e) Assuming each firm captures an equal share of the market, what now is each firm's output, q? f) What now is individual firm profit? g) Illustrate your answer
Archer Daniels Midland (ADM) and Cargill are the biggest makers of high-fructose corn syrup (HFCS), used to sweeten Coke, Pepsi, and other non-diet soft drinks. Each firm is currently choosing between increasing or decreasing their price for HFCS. The table below gives each firm's profits in each possible situation. A is Archer Daniels Midland and C is Cargill. For purposes of this question, ignore the existence of other HFCS makers. Cargill P increase P decrease P increase A: $500 million A: $200 million C: $400 million C: $500 million ADM P decrease A: $600 million A: $350 million C: $200 million C: $300 million a. Assuming the two firms do not cooperate, does either have a dominant strategy? If so, what is it? b. If ADM and Cargill decide to cooperate, how, if at all, will the outcome differ from part a? Would this case be an evample of a repeated or a pon-reneated game?

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