There are two firms that are producing identical goods in a market characterized bythe inverse demand curve P = 60 - 2Q, where Q is the sum of Firm 1's and Firm 2'soutput, q₁+q2. Each firm's marginal cost is constant at 12, and fixed cost are 0.Answer the following question, assuming that the firms are Cournot competitors.a. Calculate each firm's reaction function and illustrate them graphically (15points)b. How much output does each firm produce? (12.5 points)c. What is the market price? (7.5 points)d. How much profit does each firm earn? What is the industry profit? (10points)

The objective of the question is to understand the Cournot competition model and calculate the…

Answered: There are two firms that are producing…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A community's demand for monthly subscription to a streaming music service is shown by the following table. Assume that there are only two firms serving this market (Firm A and Firm B), each firm offers the same quality of service and music selection, and that each firm’s marginal cost is constant and equal to 0 (zero). (please refer to table provided) If this market were highly competitive instead of a duopoly, the quantity of streaming movie subscriptions purchased each month would be ______ If the two firms agreed to each supply one half of the quantity a monopoly would supply, the contract would specify that each firm would supply ____
Suppose oil production in the Gulf of Mexico was a symmetric horizontal oligopoly in Cournot competition. Assume there are two producers, each with a constant marginal cost of production of $50 per barrel. Let the demand function for oil in the region be D(p) = 12000 – 20p, where demand is measured in barrels per day. (You will need to calculate inverse demand from demand before moving on). What would the perfectly competitive equilibrium price and quantity be? What would be the consumer surplus and producer surplus? Draw each firm’s residual inverse demand curve. Calculate the Cournot-Nash equilibrium price and quantity. What is the total consumer surplus, total producer surplus across the two firms, and deadweight loss?
Two firms who make identical products engage in Cournot competition. The inverse market demand curve is: P(Q) = 60 - 10Q, where Q=9₁ +92. The cost functions are C₁(9₁) 1091 and C₂ (92) : 592 for firms 1 and 2, respectively. Find the Nash equilibrium quantities for each firm. (a) 9₁ = = 1.5, 92 2 (b) q₁ = 92 = 2 (c) q₁ = 92 = 1.5 (d) 9₁ = 1.5, 92 = 3 (e) None of the above options is correct.
Consider a Cournot duopoly. The market demand function is P = 180 – 2(q₂ + q₂), where P is the market price, q₂ is the output produced by Firm 1 and q₂ is the output produced by Firm 2. The two firms have a constant marginal cost c = 30. What is the total output in this market? Round your answer to the nearest integer (e.g. 50)
Consider a market that is a Bertrand oligopoly with 5 firms in the market. Each of these firms produce an identical product and each have the same cost function of C(Q) = 80Q. The inverse market demand for this product is P = 2480 – 2Q. What is the equilibrium market price?
Suppose that market demand is given by P=120-Q/3. The two identical firms in the market both have marginal costs of 20. Draw the reaction curves on a graph and find the Cournot equilibrium quantities and price.
Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity q. Firms 2 and 3 observe Firm 1's choice, and then proceed to simultaneously choose q2 and q1, respectively. Market demand is given by p(O) = 100 – Q, and Q = q1 + 42 + 41. Firm 1's costs are c, (41) = 34, firm 2's costs are cz(4,) = 34; and firm 3's costs are cs(qs) = 3q,. Starting from the end of the game, you can express Firm 2's best response function in terms of q and q3, and you can similarly express Firm 3's best response function in terms of qi and q2. Using these, answer the following questions. a) If Firm 1 chooses q1 = 9, what quantity will Firm 2 choose? b) If Firm 1 chooses qi = 100, what quantity will Firm 2 choose? c) in the subgame perfect Nash equilibrium of this game, firm 1 produces what quantity? d) In the subgame perfect Nash equilibrium of this game, firm 2 and firm 3 each produce what quantity?
4. Consider a Cournot Oligopoly with two firms, where firm 1 is twice as efficient as firm 2. In particular, firm l's cost function is c1(q1) = q1, while firm 2's cost function is e2(q2) = 2q2. The inverse market demand function is given by P = 100 – 5(q1 +92). (a) Find the firms' reaction (best response) functions. (b) Find the firms' equilibrium output levels and their profits. Does firm 1 make twice the profit of firm 2?
What is the homogeneous-good duopoly Cournot equilibrium if the market demand function is Q= 1,800 - 1,000p. and each firm's marginal cost is $0.28 per unit? The Cournot-Nash equilibrium occurs where q, equals and 92 equals (Enter numenic responses using real numbers rounded to two decimai places.) Furthermore, the equilibrium occurs at a price of $ (Round your answer to the nearest penny.)
Consider the following Cournot Duopoly diagram... Firm 1 Reaction Function r₁ A 6 C 0 E no Isoprofit curves for firm 1 Firm 2 Reaction Function 1₂ At what point is the Cournot equilibrium achieved? Q₁
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Two firms sell substitutable products; the market price is: P = 90-Q, where Q Q₁ + Q2 is the total market quantity, which consists of Q1₁ (the quantity produced by Firm 1) and Q2 (the quantity produced by Firm 2). The firms choose their quantities simultaneously. Firm 1's costs are C₁ 6Q₁ + Q². Firm 2's costs are C₂ = Q². = O Which is the payoff function for Firm 2? O π₂ = 90Q₂ - 2 Which is the best response function for Firm 1? O π₂ = 90Q₂ - Q²². πT2 π₂ = 45 - Q² Q₁ Q₂₁ 2 O π₂ = 45 - 1²/20₁². Q₁ Q₁ 3 = 16. ²/Q²-Q₁2. = 32- 2- 1/1/202₂. 3 Q₁ = 45. Q1 = 40 + ²/Q₂₁ 2.2. = 10- -

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