Consider a market characterized by demand Q = 80/6 − P/6 . It is served by...

Consider a market characterized by demand Q = 80/6 − P/6 . It is served by two firms A and B, and both firms have constant marginal cost equal to 8. Suppose an investment by firm A reduces its marginal cost to 5 (a decrease of 37.5%), while B’s marginal cost remains at 8. If the firms compete by setting quantities, what is the predicted percentage change in the market price? Show your work.

Expert Solution

Rahul Sunny answered 2 years ago

Consider a market for a good characterized by an inverse market demand P(Q) = 200−Q. There...

Consider a market for a good characterized by an inverse market demand P(Q) = 200−Q. There are two firms, firm 1 and firm 2, which produce a homogeneous output with a cost function C(q) =q2+ 2q+ 10. 1. What are the profits that each firm makes in this market? 2. Suppose an advertising consultant approaches firm 1 and offers to increase consumers’ value for the good by $10. He offers this in exchange for payment of $200. Should the firm...

Question 2 (30 marks) Consider a market with demand characterized by Q = 70 – P....

Question 2 Consider a market with demand characterized by Q = 70 – P. Suppose the market is characterized by perfect competition, and aggregate supply is represented by Q = -20 + 4P. A) Are all firms identical in this market? Why or why not? B) Calculate equilibrium price and quantity. C) Determine producer and consumer surplus associated with this market. Is total surplus maximized? How do you know?

Consider a competitive market characterized by the following supply and demand formulas: Demand: P = 105...

Consider a competitive market characterized by the following supply and demand formulas: Demand: P = 105 - 0.25QD Supply: P = 0.275QS (c) With the aid of a diagram, carefully explain what would happen in this market if the government were to impose a price ceiling of $30 per unit in this market. As part of your answer calculate the size of the deadweight loss associated with this price control.

Assume that: market demand function for a product is: P = 80 − q and marginal...

Assume that: market demand function for a product is: P = 80 − q and marginal cost (in dollars) of producing it is: MC = 1q, where P is the price of the product and q is the quantity demanded and/or supplied. Also assume that the government imposes a price control at P = $80/3 a) Find the consumer and producer surplus associated with the price control allocation. b) How would the price control allocation in (a) differ from the...

1. Consider a closed economy. Let the demand curve be P = 80 - Q and...

1. Consider a closed economy. Let the demand curve be P = 80 - Q and the supply curve be P = 20 + 2Q a) Calculate the equilibrium price and equilibrium quantity. b) Suppose the government sets a price ceiling of $55, what is the amount of excess demand or excess supply? (Write down excess demand or excess supply). c) Suppose the government sets a production quota of 16 units, calculate the equilibrium price and equilibrium quantity. 2. Consider...

2Q Consider a closed economy. Let the demand curve be P = 80 - Q and...

2Q Consider a closed economy. Let the demand curve be P = 80 - Q and the supply curve be P = 20 + 2Q . a) Calculate the equilibrium price and equilibrium quantity. b) Suppose the government sets a price ceiling of $55, what is the amount of excess demand or excess supply? (Write down excess demand or excess supply). c) Suppose the government sets a production quota of 16 units, calculate the equilibrium price and equilibrium quantity. 2....

Consider a market with market demand P(Q) = 70 -8Q and each firm in the market...

Consider a market with market demand P(Q) = 70 -8Q and each firm in the market faces a total cost TC(Q) = 22Q. Suppose there is only one firm in the market. (a) What is the profit-maximizing price and quantity in the market? (b) What are the profits and consumer surplus? Now suppose we have a Cournot duopoly where firms choose quantities. (c) What is the equilibrium price and market quantity? (d) What is the consumer surplus and profits for...

6. Assume market demand characterized by MWTP(Q)=42-Q (MWTP=marginal willingness to pay, and is another term for...

6. Assume market demand characterized by MWTP(Q)=42-Q (MWTP=marginal willingness to pay, and is another term for demand) and market supply characterized by MC(Q)=6+2Q (MC is marginal cost – recall the supply curve is also a firm’s marginal cost curve in a competitive market). Further, assume a negative externality equal to $6 per unit transacted. a. Solve for the equilibrium quantity transacted in a market without interventions as well as the efficient (socially optimal) quantity. b. In an appropriately labeled graph,...

Consider a market where inverse demand is given by P = 40 − Q, where Q...

Consider a market where inverse demand is given by P = 40 − Q, where Q is the total quantity produced. This market is served by two firms, F1 and F2, who each produce a homogeneous good at constant marginal cost c = $4. You are asked to analyze how market outcomes vary with industry conduct: that is, the way in which firms in the industry compete (or don’t). First assume that F1 and F2 engage in Bertrand competition. 1....

Consider a perfectly competitive market where the market demand curve is p(q) = 1000-q. Suppose there...

Consider a perfectly competitive market where the market demand curve is p(q) = 1000-q. Suppose there are 100 firms in the market each with a cost function c(q) = q2 + 1. (a) Determine the short-run equilibrium. (b) Is each firm making a positive profit? (c) Explain what will happen in the transition into the long-run equilibrium. (d) Determine the long-run equilibrium.

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