Suppose there are only two natural gas producers in Kabralkstan. In each period, firms determine how nuch natural gas to sell; market price is then determined by total demand and total supply. Marginal ost is given by 77 for Firm 1 and 74 for Firm 2. Currently, Firms 1 and 2 are producing 170 and 200, respectively, whereas market price is 94. By making an important discovery in the process of ydraulic fracturing (or "fracking"), Firm 2 managed to cut its marginal cost from 74 to 68. (a) What impact do you expect Firm 2's cost reduction to have on its market share? (b) How much would Firm 1 be willing to pay in support of a campaign to (successfully) prevent Firm 2 from using its new fracking process?

Suppose there are only two natural gas producers in Kabralkstan. In each period, firms determine how nuch natural gas to sell; market price is then determined by total demand and total supply. Marginal ost is given by 77 for Firm 1 and 74 for Firm 2. Currently, Firms 1 and 2 are producing 170 and 200, respectively, whereas market price is 94. By making an important discovery in the process of ydraulic fracturing (or "fracking"), Firm 2 managed to cut its marginal cost from 74 to 68. (a) What impact do you expect Firm 2's cost reduction to have on its market share? (b) How much would Firm 1 be willing to pay in support of a campaign to (successfully) prevent Firm 2 from using its new fracking process?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.2P

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