The cost function is c =q². Therefore, marginal cost equals 2q. Quantity refersto square metre of road resurfacing. Note the Q denotes aggregate market demand and q denotes your production. Of course, if you are the only supplier than q = Q. a) Compute profit maximising price and output. Compute profits. b) The monopoly profit that you have been earning has attracted attention from another firm that will set up operations in South Koreaand compete for market share. You are concerned with losing market share and profit. So, you offer the potential entrant the following deal. Both firms agree to maximise industry profits (joint profits). The potential entrant wants to know: i. How much each firm will produce? What will be the market price? ii. iii. How much profit will each firm earn? iv. What will be industry profits? c) When you make the offer detailed in part b), the potential entrant observes that aggregate industry profits are different than when the market was supplied only by your firm. Explain the potential entrant why aggregate profits are not the same.

The cost function is c =q². Therefore, marginal cost equals 2q. Quantity refersto square metre of road resurfacing. Note the Q denotes aggregate market demand and q denotes your production. Of course, if you are the only supplier than q = Q. a) Compute profit maximising price and output. Compute profits. b) The monopoly profit that you have been earning has attracted attention from another firm that will set up operations in South Koreaand compete for market share. You are concerned with losing market share and profit. So, you offer the potential entrant the following deal. Both firms agree to maximise industry profits (joint profits). The potential entrant wants to know: i. How much each firm will produce? What will be the market price? ii. iii. How much profit will each firm earn? iv. What will be industry profits? c) When you make the offer detailed in part b), the potential entrant observes that aggregate industry profits are different than when the market was supplied only by your firm. Explain the potential entrant why aggregate profits are not the same.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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