Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denote price and total goods produced and the parameter A denotes the size of the domestic market. Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the market which produce q1 and q2, where Q = q1 + q2. a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups. b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are two firms? Provide some intuition for these predictions. c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q*, P* and markups? And why?
Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denote price and total goods produced and the parameter A denotes the size of the domestic market. Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the market which produce q1 and q2, where Q = q1 + q2. a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups. b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are two firms? Provide some intuition for these predictions. c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q*, P* and markups? And why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denote
price and total goods produced and the parameter A denotes the size of the domestic market.
Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the
market which produce q1 and q2, where Q = q1 + q2.
a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups.
b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are two
firms? Provide some intuition for these predictions.
c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q*, P* and
markups? And why?
Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the
market which produce q1 and q2, where Q = q1 + q2.
a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups.
b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are two
firms? Provide some intuition for these predictions.
c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q*, P* and
markups? And why?
Explanation and math work for all three parts please!!
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!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 26 images
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.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education