Question

In: Economics

1. Firm A and Firm B make identical products. Industry demand is Q = 90 -...

1. Firm A and Firm B make identical products. Industry demand is Q = 90 - P. Both firms have a constant marginal cost of $30. There are no capacity constraints. a) Solve for the equilibrium price and quantity produced under Bertrand-Price model of competition. How much profits would they make? ii) Cournot-Quantity model of competition. How much profits would they make? b) Suppose that firm A is considering whether to invest in research and development that would lower its marginal cost to $15. How much would firm A be willing to pay for this research assuming 1) Cournot-Quantity model of competition 11) Bertrand-Price model of competition. Hint: solve for the equilibrium when A has a MC =15$ and B has a MC of $30 and compare the profits that you have found in part a) where they both had MC of $30 c) Now assume that Firm A has a capacity constraint of 30 units of production and Firm B has a capacity constraint of 20 units. In a Bertrand-Price competition model would the Bertrand - paradox hold? What would be the equilibrium price? How much profits would the firms earn?

Solutions

Expert Solution

Rahul Sunny answered 7 months ago
Next > < Previous

Related Solutions

Question 1: Demand in an industry is 1200 – Q/10. There are 20 identical firms in...
Question 1: Demand in an industry is 1200 – Q/10. There are 20 identical firms in a competitive fringe, each with the cost function: C(q) = 1000q + q2 . There is also a dominant firm with the cost function C(q) = b*q, where b is a constant, and b<1000. (a) What is the maximum possible value of b such that the fringe produces zero output? (b) Suppose b=500. Work out the equilibrium price and Consumer Surplus. (c) Suppose b=...
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 companies (A and B) are duopolists that produce identical products. Demand for the products is...
Two companies (A and B) are duopolists that produce identical products. Demand for the products is given by the following demand function: P = 1,000 - QA - QB where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are: TCA = 50,000 + 200QA + .5QA2 TCB = 20,000 + 400QB + QB2 Assume that the firms form a cartel to maximize total industry...
Two companies (A and B) are duopolists that produce identical products. Demand for the products is...
Two companies (A and B) are duopolists that produce identical products. Demand for the products is given by the following demand function:           P = 10,000 - QA - QB where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are:           TCA = 500,000 + 200QA + .5QA2          TCB = 200,000 + 400QB + QB2 a) Assume that the two firms act independently...
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?
Consider an industry with demand Q = a − p where 3 identical firms that compete...
Consider an industry with demand Q = a − p where 3 identical firms that compete a la Cournot. Each firm’s cost function is given by C = F + c q. Suppose two of the firms merge and that the merged firm’s cost function is given by C = F'+C'q, where F<F'<2F (a) Determine each firm’s market share before and after the merger. (b) Suppose that a = 10 and c = 3. Determine the Herfindahl index after the...
Suppose there are two firms, Firm A and Firm B that produce identical products in a...
Suppose there are two firms, Firm A and Firm B that produce identical products in a duopoly. Firm A has a constant marginal cost of production, MCA = 10 and Firm B has a constant marginal cost, MCB = 14. The market demand curve for the the product is given by P = 42 − 0.004Q where Q = (QA + QB). (a) Suppose that Firm A has a first-mover advantage. That is, Firm A is able to choose output...
Consider a market with two identical firms, Firm A and Firm B. The market demand is...
Consider a market with two identical firms, Firm A and Firm B. The market demand is ? = 20−1/2?, where ? = ?a +?b . The cost conditions are ??a = ??b = 16. a) Assume this market has a Stackelberg leader, Firm A. Solve for the quantity, price and profit for each firm. Explain your calculations. b) How does this compare to the Cournot-Nash equilibrium quantity, price and profit? Explain your calculations. c) Present the Stackelberg and Cournot equilibrium...
1) Consider two products A and B that have identical cost, retail price and demand parameters...
1) Consider two products A and B that have identical cost, retail price and demand parameters and the same short selling season (the summer months from May through August). The newsvendor model is used to manage inventory for both products. Product A is to be discontinued at the end of the season this year, and the leftovers will be salvaged at 75% of the cost. Product B will be re-offered next summer, so any leftovers this year can be carried...
#1) Consider a market with demand curve given by P = 90 - Q . The...
#1) Consider a market with demand curve given by P = 90 - Q . The total cost of production for one firm is given by TC(q) = (q2/2)+10 . The marginal cost of production is MC = q . a) If the market is perfectly competitive, find the supply curve for one firm. Explain. b) If the market price was $10, how many perfectly competitive firms are in the industry if they are identical? Explain. c) Find an expression...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT