There are N symmetric firms in the industry, facing market demand Q (p) = 250-p Firms...

There are N symmetric firms in the industry, facing market demand
Q (p) = 250-p

Firms have a constant marginal cost of production of c = 10, and they compete in prices.
a) What are the Bertrand equilibrium price, output levels, and profits?
b) Suppose that the firms want to sustain the monopoly price using grim trigger strategies. Let each firm
produce a share of 1/N of the total demand under collusion. Calculate the critical discount factor as a function D (Delta) of N. Does collusion become easier or harder to sustain as N increases?
c) Suppose that the actual discount factor is = 0.7. How many firms can enter this industry without jeopardizing the cartel?

Solutions

Expert Solution

Rahul Sunny answered 3 weeks ago

Next > < Previous

Related Solutions

Consider a market with two firms, facing the demand function: p = 120 – Q. Firms...

Consider a market with two firms, facing the demand function: p = 120 – Q. Firms are producing their output at constant MC=AC=20. If the firms are playing this game repetitively for infinite number of times, find the discount factor that will enable cooperation given the firms are playing grim trigger strategy.

Firms A and B are Bertrand duopolists facing market demand, P = 300-Q, where Q =...

Firms A and B are Bertrand duopolists facing market demand, P = 300-Q, where Q = QA+QB, and marginal cost, MC = 68. a)What level of output will each firm will produce? b)What price will each charge? c)Why is this outcome a Nash equilibrium?

3) (Symmetric Cournot) Consider a duopoly facing market demand p(Q) = 90 – 3Q, and assume...

3) (Symmetric Cournot) Consider a duopoly facing market demand p(Q) = 90 – 3Q, and assume each firm has cost function C(q) = 18q. For parts a-d, suppose these two firms engage in Cournot competition – that is, they simultaneously choose a quantity to produce, and then the price adjusts so that markets clear. [Recall that a firm’s Cournot best response function is the quantity that this firm will choose to produce in order to maximize its own profit, for...

6. Assume an industry with two firms facing an inverse market demand of P = 100...

6. Assume an industry with two firms facing an inverse market demand of P = 100 - Q. The product is homogeneous, and each firm has a cost function of 600 + 10q + 0.25q2. Assume firms agree to equally share the market. a. Derive each firm’s demand curve. b. Find each firm’s preferred price when it faces the demand curve in part a. Now assume that firm 1’s cost function is instead 25q + 0.5q2 while firm 2’s is...

Consider an industry facing the market demand curve, p = 25 - 0.25 Q. Given the...

Consider an industry facing the market demand curve, p = 25 - 0.25 Q. Given the cost situation where average cost is equal to marginal cost which is equal to $10: (Points 35) (a) compute competitive price, quantity, profit and consumer surplus; (b) compute monopoly price, quantity, profit, consumer surplus and welfare loss ; (c) show that if a monopolist can further sell its product in the secondary market, then the welfare loss can be diminished.; (d) compute the price elasticity...

Consider an industry with n identical firms competing a l´a Cournot. Demand is P(Q) = 1...

Consider an industry with n identical firms competing a l´a Cournot. Demand is P(Q) = 1 − Q, and each firm’s total cost function is T C(qi) = cqi . (a) Find the limit of the total equilibrium output Q∗ (n) as n goes to infinity. (b) Suppose that n > 3 and 3 firms decide to merge. The new firm has the same total cost function as its predecessors. What is the condition on n that ensures that the...

Two firms compete in a market with inverse demand P(Q) = a − Q, where the...

Two firms compete in a market with inverse demand P(Q) = a − Q, where the aggregate quantity is Q = q1 + q2. The profit of firm i ∈ {1, 2} is πi(q1, q2) = P(Q)qi − cqi , where c is the constant marginal cost, with a > c > 0. The timing of the game is: (1) firm 1 chooses its quantity q1 ≥ 0; (2) firm 2 observes q1 and then chooses its quantity q2 ≥...

There are two firms in an industry with demand P=130-Q. Both firms have a constant marginal...

There are two firms in an industry with demand P=130-Q. Both firms have a constant marginal cost of production equal to $40. a) If there are no fixed costs what will be the Cournot equilibrium levels of output for each firm? (b) In part a), what is the market price and the profit for each individual firm? (c) If the fixed cost is instead $1300 for each firm and there is entry and exit in the market, how many firms...

The market demand is Q=120-P, there are two firms on the market that engage in Stackelber...

The market demand is Q=120-P, there are two firms on the market that engage in Stackelber competition. Both firms have MC=0 and FC=0. How much more profit does Stackelber leader made compared to Cournot?

In an industry where demand is Q = 120 – P and two identical firms have...

In an industry where demand is Q = 120 – P and two identical firms have MC = AC = 30 find the Cournot and the Stackelberg equilibriums and compare the corresponding market outcomes. Do consumers have a preference for one market structure over the other?

Subjects