Consider the following model of Cournot competition with fixed cost.There are two identical firms, and the inverse demand function is given by5.P(q1, 42)19 – (q1 + 92).Firms have constant marginal cost, but any firm operating in this market (thatis, q; > 0) must pay a license fee F. In particular, firm i's cost function isif qi = 0c:(4;) = { F+4 if qi > 0.(a)Derive the firms' best response functions.(b)For what values of F, if any, will there be a symmetric (pure) Nashequilibrium in which firms produce a positive quantity? What is the Nashequilibrium in that case?(c)For what values of F, if any, will both firms shutting down be theSy anmetric (pure) Nash equilibrium?

Answered: Image /qna-images/answer/a7e64cd4-353e-4838-a7c9-cc4332ce3f66.jpg

There are two identical firms, and the inverse demand function is given by P(q1, 42) 19 – (41 + 92). Firms have constant marginal cost, but any firm operating in this market (that s, q; > 0) must pay a license fee F. In particular, firm i's cost function is a(m) = { if qi = 0 F+ qi if qi > 0. (a) Derive the firms' best response functions. (b) For what values of F, if any, will there be a symmetric (pure) Nash equilibrium in which firms produce a positive quantity? What is the Nash equilibrium in that case? (c) For what values of F, if any, will both firms shutting down be the Sy anmetric (pure) Nash equilibrium?

There are two identical firms, and the inverse demand function is given by P(q1, 42) 19 – (41 + 92). Firms have constant marginal cost, but any firm operating in this market (that s, q; > 0) must pay a license fee F. In particular, firm i's cost function is a(m) = { if qi = 0 F+ qi if qi > 0. (a) Derive the firms' best response functions. (b) For what values of F, if any, will there be a symmetric (pure) Nash equilibrium in which firms produce a positive quantity? What is the Nash equilibrium in that case? (c) For what values of F, if any, will both firms shutting down be the Sy anmetric (pure) Nash equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Consider an industry with N firms that compete by setting the quantities of an identical product simultaneously. The resulting market price is given by: p = 1000 − 4Q. The total cost function of each firm is C(qi) = 50 + 20qi . (a) Derive the output reaction of firm i to the belief that its rivals are jointly producing a total output of Q-i . Assuming that every firm produces the same quantity in equilibrium, use your answer to compute that quantity. (b) Suppose firms would enter (exit) this industry if the existing firms were making a profit (loss). Write down a mathematical equation, the solution to which would give you the equilibrium number of firms in this industry. You don’t have to solve this equation.
Suppose that the only movie theater in town has two types of customers, senior citizens and adults. The demand curve for senior citizens and adults are given by: Q₁ = 100 - P₁ Q2 = 120 - 0.5P₂ Where Q₁ denote the number of movie tickets purchased by senior citizens and Q2 denote the number of movie ticket purchased by adults. The cost function for the movie theater is given by: TC 2000 + 20 (Q₁ + Q₂) Suppose that the theater can charge two different prices and is going to apply the third-degree price discrimination as their pricing strategy: Demand curve for senior citizens C. Demand curve for adults Total Cost of Production a. List and explain all the conditions necessary for third-degree price discrimination! b. (i) What prices will the movie theater charge and how many tickets will be sold to each type of consumer: (ii) Explain graphically your answer in part b(i, Now suppose that MC is rising, show graphically the case where third-degree price discrimination may not be profitable…
A firm with market power has an individual consumer demand of Q 10 P and total costs of C = 2Q. What is the optimal amount of this product to package in a single block? Multiple Choice 2 8 64 =
A rise in the price of cabbage from $14 to $18 per bushel, caused by a shift of the demand curve, increases the quantity supplied from 4,000 to 6,000 bushels. The elasticity of supply using point formula is ________________
Exercise 6.8. Two companies with cost functions C1 (q1 )=5q1 and C2 (q2)= 0.5 q2 ² supply the to the same market. If the inverse market demand function is given by P = 100 - 0,5Q , where Q = q₁ + q₂ , find a) The production level of each firm, the price and the profits if the companies compete according to the Cournot model. (b) The level of production of each undertaking, the price and the profits if the undertakings agree to jointly maximise their profits. Show the results with the help of graphs.
Katie's Quilts is a small retailer of quilts and other bed linen products. Katie currently purchases quilts from a large producer for $100 each and sells them in her store at a price that does not change with the number of quilts that she sells. Katie is considering vertically integrating by making her own quilts. If the fixed cost of vertically integrating is $25,000 and she can produce quilts at Homework: Homework 7 (Lecture 6) Save Score: 0 of 1 pt 6 of 10 (8 complete) HW Score: 80%, 8 of 10 pts Text Question 4.2 Ques $50 per quilt, her total cost of producing quilts, q, herself is C=25,000+50q. How many quilts does Katie need to sell for vertical integration to be a profitable decision? For vertical integration to be profitable, Katie must sell at least nothing quilts. (Enter your response rounded to the nearest whole number.)
V1
A regional airline is the only carrier on a local air route and must determine the number of flights it will provide per month, and the fare it will charge. The estimated cost – fuel, airport charges, pilots, etc. – per flight is $2,000, and each flight is expected to be full, with 100 passengers. Thus the marginal cost per passenger may be considered to be $20.The estimated demand curve is P = 117 - 0.005Q, where P is the fare in dollars and Q is the number of passengers per month. What is the monthly profit if the airline chooses the profit-maximizing fare and number of flights? (Do not include $ sign in your answer. Round any intermediate calculations to two decimal places and your final answer to the nearlest whole number.)
= 2. Two firms operate in the coffee market. Let ai, for i 1, 2, be the investment in advertising. Profit functions depend on a₁ and a2as follows: π1(α1, α2) = 4a1 + 3a1a2 - (α₁)² T2(α1, α2) 2a2 + a1a2 - (α₂)² a) Find reaction functions. b) Are a₁, a2 strategic complements or strategic substitutes? c) Find the equilibrium investment in advertising.
For many years, states levy a special sales tax on wine often called a "sin tax". The reasoning behind these special sales taxes is that wine consumption can lead to particular social costs such as drunk driving, violence, etc. However, many medical studies have demonstrated that moderate consumption of red wine can lower the risks for many diseases such as coronary heart disease. Thus, there are social benefits as well. Suppose that states, in recognition of some of the benefits to wine consumption, decide to decrease the sales tax on Oregon Pinot Noir. What effect will this have on consumer surplus, producer surplus, and deadweight loss. Consumer surplus increases, producer surplus increases, and deadweight loss increases. Consumer surplus decreases, producer surplus decreases, and deadweight loss decreases. Consumer surplus decreases, producer surplus increases, and deadweight loss is unchanged. Consumer surplus increases, producer surplus increases, and deadweight loss decreases.
Suppose that Kenya Railways serves two major separate customers, namely: urban users and rural users of the railway line. The company can charge different prices to these two customers. Suppose that the total cost for running trips by Kenya Railways is given by the following cost function: C= 25+10Q Where: C = total cost Q = total output of trips made by the railway line The inverse demand functions for the two customers are given as follows: P1 = 40-5Q1 P2 =90-2Q2 Where: p1 = Price charged to urban users; and is number of trips by urban users p2 = Price charged to rural users; and is number of trips by rural users Required: How many trips should Kenya Railway serve in each market and what price should the firm charge in each market? Compute the profits of Kenya Railways without price discrimination From your knowledge of the relationships between various costs of production, fill in the blanks of Table 1 below: Table 1 Q TC…