Suppose that there are two firms in an industry and they face market demand y=400-0.5p where...

Suppose that there are two firms in an industry and they face market demand y=400-0.5p where y=y₁+y₂ . The total cost functions of the firms are C₁(y₁)= 40y₁ and C₂(y₂)= 2y₂².

a) Assume initially that the firms enter into Cournot competition. Calculate the equilibrium market price and each firm’s equilibrium output. That is, find y₁^c, y₂^c, and p^c.

b) Calculate the equilibrium market price and each firm’s equilibrium output assuming that firm 2 is the Stackelberg leader and firm 1 is the follower. That is, find y₁^s, y₂^s, and p^s

c) Will the firms prefer collusion (cartel) equilibrium or Cournot game? Based on your calculations in parts above, explain clearly.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Suppose that there are two firms in an industry and they face market demand y=400-0.5p where...

Suppose that there are two firms in an industry and they face market demand y=400-0.5p where y=y1+y2 . The total cost functions of the firms are C1(y1)= 40y1 and C2(y2)= 2y22. a) Assume initially that the firms enter into Cournot competition. Calculate the equilibrium market price and each firm’s equilibrium output. That is, find y1c, y2c, and pc. b) Calculate the equilibrium market price and each firm’s equilibrium output assuming that firm 2 is the Stackelberg leader and firm 1...

1. Suppose that there are two firms in an oligopoly industry, and they face inverse market...

1. Suppose that there are two firms in an oligopoly industry, and they face inverse market demand, ?(?) = 60 − 2?, where ? = ?1 + ?2. The total cost functions of the firms are: ?1 (?1 ) = 10?1 ?2 (?2 ) = 2?2 2 a. Solve for the Cournot reaction functions of each firm. b. Solve for the Cournot–Nash equilibrium quantities, price, and profits. c. Suppose Firm 1 is a Stackelberg leader and Firm 2 is the...

2. Suppose there are 2 firms in a market. They face an aggregate demand curve, P=400-.75Q....

2. Suppose there are 2 firms in a market. They face an aggregate demand curve, P=400-.75Q. Each firm has a Cost Function, TC=750+4q (MC=4). c. Suppose instead that firm A is a Stackelberg leader and gets to choose quantity first. Calculate each firm's best-response function. What is the Nash equilibrium level of production for each firm? What is the equilibrium price? What are the profits of each firm?

A two-firm industry is characterized by Cournot competition. The two firms face a market demand given...

A two-firm industry is characterized by Cournot competition. The two firms face a market demand given by P = 200 - 2(QA + QB), where QA is firm A's output and QB is firm B's output. Each firm produces the product at a constant marginal cost of $40 (i.e. MC = 40) a.) What is firm 1's reaction function? b.) How many units of output does firm A produce? c.) what is the market price of each firm? d.) if...

1. The market demand curve for a product is D(p) = q = 400 – 0.5p....

1. The market demand curve for a product is D(p) = q = 400 – 0.5p. The market supply curve is S(p) = q = 4p – 100. a. Find the inverse demand & supply curves. (2 point) b. Calculate the market equilibrium price & quantity. (2 points) c. Draw a graph depicting these curves & the market equilibrium price & quantity. (3 points) 2. A competitive firm has the following cost function: c(y) = 4y2 + 300. a. What...

2. Consider a market where the demand is given by Y = 2 400 - 200p...

2. Consider a market where the demand is given by Y = 2 400 - 200p (i.e., the inverse demand is p = 12 – 0.005Y). a) Assume for the moment that this market is perfectly competitive. In the short run, there are 50 identical firms operating in this market with cost function c (yi) = 0.25y^2 +100. Find an individual firm's supply function, the industry supply function, the market price and the total quantity sold in the market, the...

2. Suppose two firms are competing in prices (Bertrand) in an industry where demand is P=300-10Q....

2. Suppose two firms are competing in prices (Bertrand) in an industry where demand is P=300-10Q. Assume neither firm faces any fixed costs. (a) If both firms have MC=100, what is the equilibrium price? Profits? (b) Suppose one firm has MC=200 and one has MC=0. Approximately how much profit does each firm make? (c) Suppose one firm has MC=150 and one has MC=100. Approximately how much profit does each firm make?

A monopolist has access to an industry with market demand P = 10 − y where...

A monopolist has access to an industry with market demand P = 10 − y where y is the firm’s quantity. Its cost function is C(y) = 2y a. Determine the firm’s profit maximizing quantity. Show your outcome on a graph. What is the firm’s profit? Compute the point-elasticity of demand at the profit-maximizing output. b. Now suppose the firm’s cost function is C(y) = 4y Again determine the profit-maximizing quantity, profit and the elasticity at the profit-maximizing quantity. (No...

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?

The can industry is composed of two firms. Suppose that the demand curve for cans is...

The can industry is composed of two firms. Suppose that the demand curve for cans is P= 100- Q and the total cost function of each firm is TC = 2 + 15q. b) If only one firm enters a new market, how much will each firm produce and will make the profit? c) If both enter the new market, how much will each firm produce and will make the profit? e) If these two firms collude and they want...

Subjects