Question

In: Economics

Q1.Two firms produce in a market with demand P=100-Q. The marginal cost for firm 1 is...

Q1.Two firms produce in a market with demand P=100-Q. The marginal cost for firm 1 is constant and equals 10. The marginal cost of firm 2 is also constant and it equals 25. Firm 1 sets output first. After observing firm 1's output, firm 2 sets its output. (Please pay attention. Read the brackets correctly.)

1a. For firm 2, the best response is R₂(q₁)=(A-q₁)/2. The value for A is?

1b. Solve for the Stackelberg equilibrium. The quantity sold by firm 1 is?

1c. Solve for the Stackelberg equilibrium. The quantity sold by firm 2 is?

1d. Consider the Stackelberg equilibrium you derived in 1b and 1c, (q1S, q2S). Consider the two firms' isoprofit curves passing through (q1S, q2S). The slope of firm 1's isoprofit curve, (dq₂/dq₁)|π₁ , at (q1S, q2S) is equal to?

[By definition, an isoprofit curve for firm 1 collects all pairs of (q₁,q₂) which give firm 1 the same profit level. c.f.: indifference curves for consumers. For example, π₁(10,10)=π₁(20,35)=700. The pairs (10,10) and (20,35) are on the same isoprofit curve. ]

1e. The slope of firm 1's isoprofit curve at the Cournot equilibrium (35,20) is equal to?

1f. Suppose now that entry requires fixed cost F=100. Find the limit output that firm 1 has to produce to deter entry. q1L=?

1g. Given F=100, the profit maximising output for firm 1 is q1*=?

2. Which of the following is not a characteristic of a long-run equilibrium for a firm in a monopolistically competitive industry?

Select one:

a. The firm maximises profits.

b. Price will be greater than marginal cost.

c. Average total cost will be minimised.

d. Price will equal to average total cost.

Solutions

Expert Solution


Related Solutions

The market demand is given as; P = 100 – Q Marginal cost of production is...
The market demand is given as; P = 100 – Q Marginal cost of production is given as; MC = 10 Calculate the level at which market decides to produce and market price    Total Revenue ( TR) and Total Cost (TC) Economic Profit (π) Identify the market structure; either perfect competition or monopoly?
The market demand curve is given by p = 100 - Q Two firms, A and...
The market demand curve is given by p = 100 - Q Two firms, A and B, are competing in the Cournot fashion. Both firms have the constant marginal cost of 70. Suppose firm A receives a new innovation which reduces its marginal cost to c. Find the cutoff value of c which makes this innovation "drastic".
Consider three firms that face market demand P=98-Q The cost functions are c1(q1)= 6q^2  for firm 1,...
Consider three firms that face market demand P=98-Q The cost functions are c1(q1)= 6q^2  for firm 1, c2(q2)= 2q^2  for firm 2, and c3(q3)= 2q^2 for firm 3. Firm 1 is the Stackelberg leader and firms 2 and 3 are the followers. What is firm 1's equilibrium output q1?
1 Consider two Cournot competitive firms – with the following market demand function P=100-Q. The firms...
1 Consider two Cournot competitive firms – with the following market demand function P=100-Q. The firms face constant marginal costs, MC1 = 5 whereas MC2 = 25. However, if they merge then the marginal production costs would fall to 5. Calculate the costs and benefits due to the merger for either firm.    Is this merger Pareto improving for the economy? Explain.    A Bertrand competition does not necessarily gravitate towards competitive prices in the equilibrium, with imperfect substitutes. In...
In a duopoly, each firm has marginal cost MC = 100, and market demand is Q...
In a duopoly, each firm has marginal cost MC = 100, and market demand is Q = 500 - 0.5p. Assuming average cost is the same as marginal cost. In which oligopoly, Cournot or Stackelberg, do firms have more market power? a. Cournot since the Lerner Index in the Cournot model is twice as much as that in the Stackelberg model. b. Stackelberg since the Lerner Index in the Cournot model is twice as much as that in the Stackelberg...
Two firms produce a homogeneous product with an inverse market demand given by P = 100...
Two firms produce a homogeneous product with an inverse market demand given by P = 100 – 2Q, where Q = q1+q2. The first firm has a cost function given by C1=12q1and the second firm has a cost function given by C2=20q2. The firms make simultaneous output choices to maximize profit. Determine the equilibrium values of firm outputs, market output, price, and firm profits. With reference to question 1, now assume that decision-making is sequential with firm 1 choosing its...
Two firms produce a homogeneous product with an inverse market demand given by P = 100...
Two firms produce a homogeneous product with an inverse market demand given by P = 100 – 2Q, where Q = q1+q2. The first firm has a cost function given by C1=12q1and the second firm has a cost function given by C2=20q2. The firms make simultaneous output choices to maximize profit. Determine the equilibrium values of firm outputs, market output, price, and firm profits. With reference to question 1, now assume that decision-making is sequential with firm 1 choosing its...
Consider three firms that face market demand P= 99-Q . The cost functions are C1(q1)=6q1*2for firm...
Consider three firms that face market demand P= 99-Q . The cost functions are C1(q1)=6q1*2for firm 1, C2=2q2*2( C2 = (2q2)square ) for firm 2, andC3(q3)=2q3*2 for firm 3. Firm 1 is the Stackelberg leader and firms 2 and 3 are the followers. What is firm 1's equilibrium output q1?
Consider three firms that face market demand P= 99-Q . The cost functions are C1(q1)=6q1*2for firm...
Consider three firms that face market demand P= 99-Q . The cost functions are C1(q1)=6q1*2for firm 1, C2=2q2*2( C2 = (2q2)square ) for firm 2, andC3(q3)=2q3*2 for firm 3. Firm 1 is the Stackelberg leader and firms 2 and 3 are the followers. What is firm 1's equilibrium output q1?
Consider three firms that face market demand P= 99-Q . The cost functions are C1(q1)=6q1*2for firm...
Consider three firms that face market demand P= 99-Q . The cost functions are C1(q1)=6q1*2for firm 1, C2=2q2*2( C2 = (2q2)square ) for firm 2, andC3(q3)=2q3*2 for firm 3. Firm 1 is the Stackelberg leader and firms 2 and 3 are the followers. What is firm 1's equilibrium output q1?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT