The citizens of Ruritania are prodigious consumers of marmite. They can buy it from one of two sellers: Omni Corp (OCP) or the Umbrella Corporation. The marmite sold by each is identical to the other but for color of the packaging. OCP sells its marmite in a red package while Umbrella sells its marmite in a green package. Competition between the two rms follows the Cournot model. The inverse demand curve for marmite is p = 50 - q; where q is the total amount of marmite produced by OCP and Umbrella.The production costs consists of two components. The rst is processing, while the second comes from the price of the main ingredient. OCP has a constant marginal cost of processing of $2 a unit while Umbrella has a constant marginal processing cost of $4 a unit. The main ingredient of marmite is Soylent green which is sold by a monopolist, Soylent Corp. Soylent Corp enjoys a constant marginal cost of production for Soylent Green of $0 a unit. It requires 1 unit of Soylent Green to produce 1 unit of either OCP's or Umbrella's marmite. Soylent Corp charges OCP and Umbrella a wholesale price of w per unit of Soylent Green. 1. Let qO be the quantity of marmite produced by OCP and let qU be the quantity of marmite produced by Umbrella. Write down an expression for OCP's prot as a function of qO; qU and w. 2. Determine OCP's reaction function in terms of qU and w. 3. Determine Umbrella's reaction function in terms of qO and w. 4. Determine the equilibrium amounts of marmite produced by each rm as a function of w. 5. What value of w will maximize Soylent Corp.'s prot? 6. The CEO of Soylent Corp thinks her prots would be larger if there were no competition in the Marmite market. She decides to stop selling to Umbrella, eectively making OCP the monopoly supplier of marmite. What will Soylent Corp.'s maximum prot be under this regime? In particular will Soylent Corp. be better o?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

 

The citizens of Ruritania are prodigious consumers of marmite. They can buy it from one of two

sellers: Omni Corp (OCP) or the Umbrella Corporation. The marmite sold by each is identical to

the other but for color of the packaging. OCP sells its marmite in a red package while Umbrella

sells its marmite in a green package. Competition between the two rms follows the Cournot

model. The inverse demand curve for marmite is p = 50 - q;

where q is the total amount of marmite produced by OCP and Umbrella.The production costs

consists of two components. The rst is processing, while the second comes from the price of the

main ingredient. OCP has a constant marginal cost of processing of $2 a unit while Umbrella has

a constant marginal processing cost of $4 a unit.

The main ingredient of marmite is Soylent green which is sold by a monopolist, Soylent Corp.

Soylent Corp enjoys a constant marginal cost of production for Soylent Green of $0 a unit. It

requires 1 unit of Soylent Green to produce 1 unit of either OCP's or Umbrella's marmite. Soylent

Corp charges OCP and Umbrella a wholesale price of w per unit of Soylent Green.

1. Let qO be the quantity of marmite produced by OCP and let qU be the quantity of marmite

produced by Umbrella. Write down an expression for OCP's prot as a function of qO; qU

and w.

2. Determine OCP's reaction function in terms of qU and w.

3. Determine Umbrella's reaction function in terms of qO and w.

4. Determine the equilibrium amounts of marmite produced by each rm as a function of w.

5. What value of w will maximize Soylent Corp.'s prot?

6. The CEO of Soylent Corp thinks her prots would be larger if there were no competition in

the Marmite market. She decides to stop selling to Umbrella, eectively making OCP the

monopoly supplier of marmite. What will Soylent Corp.'s maximum prot be under this

regime? In particular will Soylent Corp. be better o?

 

Expert Solution
steps

Step by step

Solved in 8 steps with 15 images

Blurred answer
Knowledge Booster
Fundraising
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.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
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)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
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-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education