Suppose that there are two firms operating in the market of laptops, the first firm supplies quantity q₁ and the second firm supplies q2. The inverse demand function for laptops is P(q1 +q2)=2,000-2(q₁ +q2). The marginal costs are constant and equal to $400. a. Find the Cournot equilibrium outputs and price. b. Find the Bertrand equilibrium outputs and price. c. Suppose that the first firm is the leader choosing the output first, and the second firm is the follower choosing the output after observing the firm firm's choice. Find the new equilibrium output and price and compare them with those in parts a and b. Which of the equilibria is famshla? 11

Suppose that there are two firms operating in the market of laptops, the first firm supplies quantity q₁ and the second firm supplies q2. The inverse demand function for laptops is P(q1 +q2)=2,000-2(q₁ +q2). The marginal costs are constant and equal to $400. a. Find the Cournot equilibrium outputs and price. b. Find the Bertrand equilibrium outputs and price. c. Suppose that the first firm is the leader choosing the output first, and the second firm is the follower choosing the output after observing the firm firm's choice. Find the new equilibrium output and price and compare them with those in parts a and b. Which of the equilibria is famshla? 11

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a market where the inverse demand function is P = 400 – 20Q, where Q is the aggregate output. Assume there are three firms which compete à la Bertrand. a)What is the equilibrium price and the corresponding aggregate output if all firms have a constant marginal cost equal to 40? b)What is the equilibrium price and the corresponding aggregate output if one firm has a constant marginal cost equal to 40 and the other firms have a constant marginal cost equal to 100? c)What is the equilibrium price and the corresponding aggregate output if one firm has a constant marginal cost equal to 40 and the other firms have a constant marginal cost equal to 260?
There are only two driveway paving companies in a small town, Asphalt, Inc. and Blacktop Bros. The inverse demand curve for paving services is ?= 2040 ―20? where quantity is measured in pave jobs per month and price is measured in dollars per job. Assume Asphalt, Inc. has a marginal cost of $100 per driveway and Blacktop Bros. has a marginal cost of $150. Answer the following questions: Determine each firm’s reaction curve and graph it. How many paving jobs will each firm produce in Cournot equilibrium? What will the market price of a pave job be? How much profit does each firm earn?
Two firms, Incumbent & Entrant, can produce the same good. The market demand for the good is given by P = 180 – Q, where P is the market price and Q is the market quantity demanded. The firms must pay w = 45 per unit of output for labour and r = 45 per unit of output for capital (one unit of capital is used per unit of output), but Incumbent may choose capacity KI units of capital before Entrant decides whether to enter the market. Suppose firms each have fixed costs FI =600, FE=500. Incumbent chooses (as a Stackelberg leader) capacity KI equal to the monopoly profit- maximizing quantity. When you answer the following questions, show your work. a. Would Incumbent be able to prevent entry by choosing capacity KI equal to the monopoly profit-maximizing quantity? Explain. b. What is the Incumbent’s equilibrium choice of capacity KI in this Dixit game? c. Does the Incumbent’s choice of capacity KI in part (b) qualify as predatory conduct (here, limit output)? Explain.
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1.7. In Section 1.2.B, we analyzed the Bertrand duopoly model with differentiated products. The case of homogeneous products
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Three firms sell identical products in a market with inverse demand given by P(Q) = 590 - 4Q, where Q = q1 + q2 + q3, i.e., the sum of all quantities produced by all three firms. Each firm has a constant marginal cost of production MC = 18 and no fixed cost. Firm 1 chooses q1 first. Firms 2 and 3 simultaneously choose q2 and q3 after observing q1. Calculate the subgame perfect equilibrium profit of firm 2.
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