Suppose two firms withdifferentiated products arecompeting on price. The reactioncurve for Firm 1 is P₁ = 4 + 0.5 P2,and the reaction curve for Firm 2 isP2 = 2 + P1. What is the equilibriumprice outcome in this market?Select one:a. P₁ = 10 and P2 = 8P1○ b. P₁ = 10 and P2 = 12c. P₁ = P2 = 8○ d. P₁ = 4 and P2 = 6e. P₁ = P2 = 4

Step 1: Differentiated products are goods or services that are distinct from one another in terms of…

Answered: Suppose two firms with differentiated…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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QUESTION 1A) Two cournot competitors face inverse demand P = 50 - Q. Where, Q = q1+q2, is the total output of firms 1 and 2. What are the equilibrium output levels for q1 and q2, If firm 1 marginal cost is 1, and firm 2's marginal cost is 12? QUESTION 1B. Continuing with the inverse demand, P = 50 - Q, if each firm has a marginal cost of 0, what is the difference between the equilibrium price under Cournot competition and under Bertrand competition? b. C. d. a. The Cournot price is higher than the Bertrand price by 50. The Cournot price is lower than the Bertrand price by 25. The Cournot price is higher than the Bertrand price by 50/3. Equilibrium prices under Cournot and Bertrand are the same, so the difference is zero.
Q3. There are two firms selling differentiated products. Firm A faces the following demand for his product: e, = 20 – -P, + -P, 2. Firm B faces the following demand: 1 P. +-P, 2. 0, = 220- Assume that the marginal cost is zero both for firm A and firm B. What are the equilibrium prices of a simultaneous price competition? What would the equilibrium prices be if A is the leader and B is the follower?
1. Consider a market with three firms (i = 1, 2, 3), which have identical marginal costs C = c2 = C3 = 0. The inverse demand function is given by p =1- Q, where Q = 91 + 92 + 93. a. Compute the Cournot equilibrium, i.e., the market price and quantity. b. Assume that two of the three firms merge. Show that the profit of merging firms decreases. c. What happens to the market price if all three firms merge compared to part (a)?
There are three identical firms in the market research industry. The demand is 1 – Q, where Q = q1 + q2 + q3. The marginal cost is zero. a. Compute the Cournot equilibrium
3. Chillin (C) and Coffee Break (B) compete in espresso market by selling imperfect substitutes. The demand equations are: Qc = 100 - Pc + pB QB = 100 - pB + pc Assume that marginal cost and average cost is 20 for both firms. a. From the equations, how can you tell these goods are substitutes? How can you tell they are imperfect substitutes? b. Suppose the firms compete by simultaneously choosing price. Find the best response function of each firm as a function of the other firm's price. c. Compute the equilibrium price and quantity for each firm.
onsider a homogenous good industry with four firms. Total demand is given by D(p)=200-p.The variable (=marginal) cost of each of the firms is c1=10, c2=20, c3=30 and c4=35. Firms compete in prices. Suppose firms 1 and 2 merge into one entity and produce with a marginal cost of 15. Which of the following statements is correct? After the merger, total welfare increases by $500. After the merger, total welfare decreases by $500. After the merger, total welfare increases by $1000. After the merger, total welfare decreases by $1000. None of the above.
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Consider the weekly market for gyros in a popular neighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power.
Question 3:Suppose the inverse demand for a good is given by P = 50 – 4Q, where Q is the totalquantity supplied by all firms in the market. Suppose each firm in the market has a constantmarginal cost of 18.Q3 a) Assume the market consists of two firms that set their quantities simultaneously.Calculate the duopoly levels of production and the equilibrium price. Q3 b) Now assume firm 1 chooses its production level before firm 2 does. What will be theequilibrium quantities, price and profits in this case?Q3 c) Now instead suppose that the two firms compete over prices rather than quantities.What will be the equilibrium price and profits of firms 1 and 2 in this case? Finally, if firm 1manages to lower its marginal cost to 14, what will be the new equilibrium price, quantitiesand profits?
If bentham received a $2, 500 bonus and his MPS is 0.20, his consumption rises by $____and his saving rises by $____ A) 2, 500; 20 B) 2, 500: 200 C) 2,000; 500 D) 500; 100
Part 2: First Long Question There are two French bakeries in a small town: Le Meilleur Croissant (C), owned by Camille, and Le Meilleur Pain Au Chocolat (P), owned by Paul. In each period of an infinitely repeated game, they compete a la Bertrand, with market demand given by Q(pmin) = 10 - Pmin- Even though they sell identical goods, they have different marginal costs: cc = 2 and Cp = 4 (Paul bakes just as well but is bad at business decisions). There are no fixed costs.
In this question you will work out a model of price competition (Bertrand competition) with differentiated products, i.e., when the two firms that compete produce slightly different products. Consider two price-setting firms, 1 and 2, each with marginal cost c, that produce goods, 1 and 2, that are imperfect substitutes. Some customers are loyal to a particular variety of the good so both firms can still have positive sales when they set different prices. Demand for firm 1's output, q1, as a function of the prices of both products, p1 and p2 , is given by q1 = 2 – 3p1 + 3p2. And the demand for firm 2's output, q2, is given by q2 = 6 – 2p2 + P1. a. How can we tell, by looking at the demand functions above, that in the preferences of consumers the two products are substitutes? Explain your answer.. b. Write this strategic situation as a simultaneous game between the two firms, specifying the set of players, the set of alternatives and the preferences of each firm. Write down the profit…

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