Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 16, Problem 1.1CE
To determine
To describe: Whether lee entitled to erode and displace dominant firms like coach with their upscale business model.
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Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is −3. The marginal cost of producing the product is constant at $100, while average total cost at current production levels is $175.Determine your optimal per unit price if:Instructions: Enter your responses rounded to two decimal places.a. you are a monopolist.
b. you compete against one other firm in a Cournot oligopoly.
c. you compete against 19 other firms in a Cournot oligopoly.
Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the
demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total
cost (ATC) curve.
PRICE (Dollars per subscription)
100
88
70
00
50
40
30
20
10
0
0
11
11
2
11
11
11
MR
ATC
-MC-
468
10 12
14
16
QUANTITY (Thousands of subscriptions)
18 20
D
?
Do you expect that an increase in the price of a product generates a larger decrease in quantity demanded for a monopolistically competitive firm than it would for a monopoly?
a/ yes; consumers will buy from competitors offering lower priced substitutes
b/ no; conditions of imperfect competition means demand is constant
c/ no; a monopolistic competitor perceives demand as a price maker
d/ yes; but temporarily because price increases only create a short-run decline
Chapter 16 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Consider a homogeneous product industry with three firms 1, 2, and 3 that engage in simultaneous quantity competition. All firms incur identical constant marginal cost c and no fixed cost. Inverse linear demand is given by p 1-q where q denotes total market output. (a) Find the equilibrium quantities, price, and profits. (b) Consider now a merger between firms 1 and 2, resulting in a duopolistic market structure. In fact, the merger gives rise to efficiency gains in the sense that the merged entity produces at marginal cost e c, where e < 1. The outsider to the merger still incurs marginal cost c. Find the post-merger equilibrium quantities, price, and profits. (c) Under what conditions does the merger reduce prices? no copy paste answers or chatgptarrow_forwardThe hand written solution is not allowed please Solve all parts will upvotearrow_forwardMany home improvement retailers like Home Depot and Lowes have low-price guarantee policies. At a minimum, these guarantees promise to match a rival’s price, and some promise to beat the lowest advertised price by a given percentage.Do these types of pricing strategies result in cutthroat Bertrand competition and zero economic profits? If not, why not? If so, suggest an alternative pricing strategy that will permit these firms to earn positive economic profits.arrow_forward
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardWhich of the following factors would make it more DIFFICULT for a seller in the market for coffee to collude successfully with his rivals? A) The coffee market includes a small number of firms. B) Firms in the coffee market place a very high value on profits earned in the present but discount significantly future profits. C) Coffee consumers are very loyal. D) Prices in the coffee market are relatively stable and do not change often. E) The antitrust agencies shut down and stop looking for cartel activity.arrow_forwardConstruct a numerical example based on a linear demand function and two firms with identical, constant marginal costs. a) Use your model to show that, a Cournot duopolist can "do better" by producing the monopoly output, under the assumption that its competitor reacts and adjusts its output optimally. b) How does this result compare to what the Stackelberg model predicted?arrow_forward
- Chillman Motors, Inc., is an oligopolist and faces the following kinked demand curve: Price and cost ($/Unit) 200 A 180 160 140 120 100 80 60 40 20 0 0 10 20 30 40 50 Quantity P2000.4Q if 0 ≤ Q≤ 50 P = 2802Q if Q> 50 The demand function can be expressed algebraically as: 60 TC = 500 +50Q +0.5Q² Chillman's total cost function is as follows: 70 80 90 100 Chillman maximizes profit by selling Calculate the marginal revenue (MR) function facing Chillman and plot it on the graph using the green points (triangle symbols). (Hint: Start with (0,200) and end at (70, 0). Use all four points.) MR 0- units at a price of $ MC Using the orange line (square symbols), plot the marginal cost curve on the graph. per unit.arrow_forward2) An industry consists of three firms with identical total cost functions C(q) = 20q+q². Market demand is Q(P) = 140 - P. a) Find the Cournot-Nash equilibrium quantity, price and profits for this industry. b) Suppose a monopolist controlled the three firms. What would its cost function be? c) What would be this monopolist's quantity, price and profits?arrow_forwardBased on United States Census Bureau data for 2017, for the utilities (electricity and gas) industry the four firm concentration ratio (C4) is 16.2 percent and the Herfindahl-Hirschman index is 161.4. Why might the actual concentration, and therefore market power enjoyed by a specific utility company in a state, be greater than what is indicated by these numbers? These ratios are calculated for the entire country, and not for a specific city or state. Please give an explanation.arrow_forward
- Consider a homogeneous product industry with three firms 1, 2, and 3 that engage in simultaneous quantity competition. All firms incur identical constant marginal cost c and no fixed cost. Inverse linear demand is given by p = 1-q where q denotes total market output. (a) Find the equilibrium quantities, price, and profits. (b) Consider now a merger between firms 1 and 2, resulting in a duopolistic market structure. In fact, the merger gives rise to efficiency gains in the sense that the merged entity produces at marginal cost e c, where e < 1. The outsider to the merger still incurs marginal cost c. Find the post - merger equilibrium quantities, price, and profits. (c) Under what conditions does the merger reduce prices? Clearly explain the step by step solution, Please be sensible and give the complete answer for the quation asked. Please solve in detail. Dont give me the chatgpt answersarrow_forwardA monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized markets and competing for customers. Consider the market for public water. In this industry, low average total costs are obtained only through large-scale production. In other words, the initial cost of setting up all the necessary pipes and treatment plants makes it risky and most likely unprofitable for a competitor to enter the market. Which of the following best explains the barriers to entry that exist in this scenario? O Legal barriers O Control over an important input O Increasing returns to scalearrow_forwardRefer to Figure 15-5. Part a) A profit-maximizing monopoly's profit is equal to: a) P2 x Q3. b) (P2-P4) x Q3. c) (P1-P6) x Q1. d) (P2-P5) x Q3. Part b) A profit-maximizing monopoly will produce an output level of a) Q3. b) Q4. c) Q2. d) Q1. Part c) A profit-maximizing monopoly will charge a price of Question 22 options: a) P2. b) P4. c) P1. d) P3.arrow_forward
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