Question

In: Economics

Suppose firm A and B operate under conditions of constant marginal and average cost but that...

Suppose firm A and B operate under conditions of constant marginal and average cost but that MCA = 10 and MCB = 8. The demand for the firm’s output is given by Q = 500 – 20P

a) If the firms practice Bertrand competition, what will the Nash Equilibrium market price be? What will be the profits for each firm?

b) If the firms practice Cournot competition, what will be the Nash equilibirum market price? What will be the profits for each firm?

c) If the firm A is the leader and firm B is the follower in this market, what will be the equilibrium price? What will be the profits for each firm?

Solutions

Expert Solution

a)

Bertrand game is a simultanieous move game. The two firms involved in such competition undercut their prices till the point where profits are vanished completely. If cost of Firm A increase, then the firm B respond by increasing the price to maintain their market share.

In this example, the nash equilibrium of the game is PA = PB = 10 since any other price would cause a retaliation from other firm.

Q = 500 - (20*10) = 300

QA = QB = 300

Profit of Firm A: (P - MC)*Q = (10 - 10)* 300 = 0

Profit of Firm B: (10 - 8)*300 = 600

b)


Related Solutions

Suppose that a monopolist has a constant average total cost of production and marginal cost of...
Suppose that a monopolist has a constant average total cost of production and marginal cost of production equal to $6, and has a demand for its product represented as price quantity bought and sold (units) $10 1 $9 2 $8 3 $7 4 $6 5 Calculate the total and marginal revenue for each quantity produced and sold Find the profit-maximizing (optimal) quantity produced and sold and the price/unit. Calculate the profit or loss at the optimal quantity of production and...
Consider a firm with a constant marginal cost curve. Sketch the average cost curves( ATC, AFC,...
Consider a firm with a constant marginal cost curve. Sketch the average cost curves( ATC, AFC, AVC) and associated marginal cost curve. And explain why the cost curves would look as sketched.
Consider a firm with a constant marginal cost curve. Sketch the average cost curves( ATC, AFC,...
Consider a firm with a constant marginal cost curve. Sketch the average cost curves( ATC, AFC, AVC) and associated marginal cost curve. And explain why the cost curves would look as sketched.
Suppose a monopolist has constant (average and marginal cost of AC = MC = 8) and...
Suppose a monopolist has constant (average and marginal cost of AC = MC = 8) and faces demand such that QD = 100 - P.                                                                                                                      Derive MR curve (hint: you can calculate TR with Demand curve, then you can drive MR from TR) Calculate a monopolist’s profit-maximizing Quantity and Price Calculate the equilibrium Price and Quantity in the perfectly competitive market Draw all curves (Demand, MR, and MC curves) Calculate Monopoly Profit and Dead Weight Loss (DWL). Comparing the profit-maximizing...
Calculate a marginal cost and an average cost schedule for this firm?
Assume that a firm in a perfectly competitive industry has the following total cost schedule and can only produce in increments of 50 units as illustrated below:Output( units )Total Cost ($)1001000150150020018002502200300280035038004005200Calculate a marginal cost and an average cost schedule for this firm?If the prevailing market price is $12 per unit, how many units should be produced and sold if the firm is trying to maximize profits? What are the profits per unit? What is the total profit?Is the industry in...
In the short run, under what conditions should the firm shut down? average total cost at...
In the short run, under what conditions should the firm shut down? average total cost at the minimum point price greater than average variable cost price less than average variable cost marginal revenue greater than marginal cost marginal revenue greater than average total cost
In the short run, under what conditions should the firm shut down? a. average total cost...
In the short run, under what conditions should the firm shut down? a. average total cost at the minimum point b. price greater than average variable cost c. price less than average variable cost d. marginal revenue greater than marginal cost
When the demand change how industry operate under increasing cost, decreasing cost and constant cost in...
When the demand change how industry operate under increasing cost, decreasing cost and constant cost in perfect competition. Draw and explain
A monopolist can produce at a constant average and marginal cost of ATC = MC =...
A monopolist can produce at a constant average and marginal cost of ATC = MC = $5. It faces a market demand curve given by Q = 53 - P. 5. Suppose there are N firms in the industry, all with the same constant MC = $5. Find the Cournot equilibrium. How much will each firm produce, what will be the market price, and how much profit will each firm earn? Also show that as N becomes large, the market...
If marginal cost exceeds marginal revenue, the firm A)should reduce its average fixed cost in order...
If marginal cost exceeds marginal revenue, the firm A)should reduce its average fixed cost in order to lower its marginal cost. B)may still be earning a positive accounting profit C)should increase the level of production to maximize its profit. D)is most likely to be at a profit-maximizing level of output. Who is a price taker in a competitive market? A)both buyers and sellers B)buyers only C)sellers only D)neither buyers nor sellers For a competitive firm, A)total cost equals marginal revenue....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT