Consider a monopoly (firm A) which produces and sells gadgets. The firm has been around for along time, implying it has no fixed cost for the production. The inverse market demand function is: P= 14−Q, wherePis the price of gadgets, Q is total supply. Firm A’s marginal (and average-)cost for producing gadgets is 2.
1. Suppose now that a firm B considers entering the market. If it enters, the two firms decideabout production volumes simultaneously. Firm B has the same marginal cost as firm A but it alsohas a fixed costF= 17to set up a production plant if it decides to enter. Find the equilibriumprice and equilibrium quantities if firm B enters the market. Calculate the profits of firm A andfirm B. Would firm B want to enter the market?
2. Suppose again that firm B considers entering the market but now, if it enters, the produc-tion volumes are not decided simultaneously. Instead firm B has the opportunity to decide firstand Firm A decides its production volume knowing and observing Firm B‚Äôs production volume.As in the previous subquestion, firm B has the same marginal cost as firm A but it also has a fixedcostF= 17to set up a production plant if it decides to enter. Find the production volumes thetwo firms will produce in equilibrium. Find the profits of the two firms. What do you concludeabout entry now?
Consider a monopoly (firm A) which produces and sells gadgets. The firm has been around for...
Table: Demand Schedule of Gadgets Price of Gadget Quantity of Gadgets Demanded $10 0 $9 100 $8 200 $7 300 $6 400 $5 500 $4 600 $3 700 $2 800 $1 900 $0 1,000 Reference: Ref 14-1 Table: Demand Schedule of Gadgets (Table: Demand Schedule of Gadgets) Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two...
6. There is a market characterized by a linear demand function given by Q = 18 - 2P. In this market there are two identical firms each with a linear cost function C(q) = 49 (a) Assume the equilibrium in this market is determined by a leader-follower dynamic where firms one enters first i.e. sets its quantify first), and firm two enters second. Find the quantities produced by each firm, and the market price. (b) Find the profits for each...
Consider the case of two firms competing in a market. Each firm has a constant marginal cost equal to $10. The demand function is D(p) = 100 − p (p is the price in cents) Firms are competing by choosing prices simultaneously. When prices are equal, each firm gets exactly one half of the total demand. P must be an integer value. 1. Find all the Nash equilibria of this duopoly game. 2. Calculate each firms profit under any equilibria. 3....
Consider an industry for a homogeneous product with a single firm (firm 1) that can produce at zero cost. The demand function in the industry is given by Q-20-P. Now suppose that a second firm (firm 2) considers entry into the industry. Firm 2 can also produce at zero cost. If firm 2 enters, firm 1 and 2 compete by setting quantities. Answer the following four questions. Qi Suppose that Firm 2 enters the market. What are the Stackelberg equilibrium...
5. (i) Consider a Cournot quantity setting game of simultaneous moves. Solve for the rationalizable strategies (quantities) for the two firms that simultaneously choose quantities to produce, which then determines the price at which the produced goods will sell. The marginal cost of production is 4 for firml and 2 for firm 2. P = 40-91-92 Find the equilibrium price and the profits of each firm. (15) ii) Now model the game as a sequential move game where firm 1...
Consider the following oligopoly model. The market demand is p(Q) = 100−Q. There are three identical firms 1, 2 and 3 producing the homogeneous product. Each firm has a constant marginal cost of 0. The three firms choose their outputs simultaneously , without observing the quantity decisions by others. Find the Cournot-Nash equilibrium in this model. Obtain the profits in equilibrium for each firm.
Cournot: Consider a Cournot duopoly in which firms A and B simultaneously choose quantity. Both firms have constant marginal cost of $20 and zero fixed cost. Market demand is given by: P = 140 − qA − qB. (a) Derive the best-response functions for each firm and plot them on the same graph. (b) Calculate the profits of each firm in the Nash Equilibrium outcome.
Firm X produces and sells office furniture. For a particular desk it sells the price it charges is $200, its average total cost is $170, and its marginal cost is $160. Firm Y decides to enter the market and sells a desk that is virtually identical. It decides to charge a price of $150, while its average total cost is $140, and its marginal cost is $130. Is Firm Y engaging in predatory pricing? Yes, Firm Y is using predatory...
36) When a monopolist sells the same product at different prices and the prices are not related to cost differences, we have B) price differentiation. D) monopoly pricing A) price discrimination C) marginal cost pricing. 37) 37) Monopolies misallocate resources because A) price does not equal marginal cost B) profits are usually positive. C) marginal cost does not equal average total cost. D) price does not equal average total cost. 38) 38) Which of the following assumptions is true about...
1a. The market is in long-run equilibrium if: There are no new firms entering the markets, but firms will high costs may exist. Firms are earning zero economic profits. Firms are charging the market price. Firms are earning economic profits 1b. The following information is relevant for an individual firm operating in a perfectly competitive market. Output 30 Variable Cost $2,700 Fixed Cost $130 Marginal Cost $80 Price $80 What will be the firm's production decision in the short-run? Exit...