Answered: Suppose we are studying the long-run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose we are studying the long-run competitive market for robots, the market demand for robots isgiven byD(p)=24p. All the firms are identical with the following cost curveC(y)=y22+8.

a)What is the long-run competitive market equilibrium?

Rick is a single consumer in the market; his consumption of robots is given byDi(p)=Mp, whereMis his fixed income. Rick is also a government regulator for the robot market; he decides if themarket is competitive or a monopoly.Morty is a firm in the market (he faces the same cost curve as everyone else:C(y)=y22+8). Mortywould like to operate as a monopolist (instead of a firm in a competitive market).

b)How much would Morty have to pay/compensate Rick in order for Rick to allow Morty to operateas a monopolist (The market demand curve is the same as part a))?

c)Suppose instead this was an oligopoly market with 2 firms engaged in Bertrand competition; bothfirms face the same cost curve and demand curve as part a). How much higher is Morty’s profitunder the Bertrand equilibrium versus the competitive market equilibrium? Make sure to justifyyour response.

d)Why does a firm at the Bertrand equilibrium have no incentive to increase its price (holding constantits opponent’s strategy)?

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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