Question

In: Economics

Consider a market where the inverse demand function is P = 100 - Q. All firms...

Consider a market where the inverse demand function is P = 100 - Q. All firms in the market have a constant marginal cost of $10, and no fixed costs. Compare the deadweight loss in a monopoly, a Cournot duopoly with identical firms, and a Bertrand duopoly with homogeneous products.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Consider a market where the inverse demand function is p =100 – Q, Q = q1+q2....
Consider a market where the inverse demand function is p =100 – Q, Q = q1+q2. Both firms in the market have a constant marginal cost of $10 and no fixed costs. Suppose these two firms are engaged in Cournot competition. Now answer the following questions: a)      Define best response function. Find the best response function for each firm. b)      Find Cournot-Nash equilibrium quantities and price. c)      Compare Cournot solution with monopoly and perfect competitive solutions.
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 ≥...
Consider a market in which firms are price-takers. The inverse demand function is p(Q) = 1...
Consider a market in which firms are price-takers. The inverse demand function is p(Q) = 1 – Q, where p denotes the price of good Q. The production costs are C(Q) = mQ, with 0 < m < 1. The environmental damage caused by output Q is D(Q) = Q 2 . a) Compute the equilibrium price and output. Also, calculate the socially optimal solution. Explain the differences, using a suitable diagram. b) What is the aim of an emission...
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....
A perfectly competitive market exists for wheat. The inverse demand is P = 100-Q where P...
A perfectly competitive market exists for wheat. The inverse demand is P = 100-Q where P is the price of wheat and Q is the total quantity of wheat. The private total cost for the unregulated market to produce a quantity of Q is 50+80Q +0.5Q^2. The production of wheat creates some pollution where the total externality cost is EC =Q^2. Task 1: Solve for the free market competitive equilibrium of wheat. Task 2: Solve for the socially optimal level...
A perfectly competitive market exists for wheat. The inverse demand is P = 100?Q where P...
A perfectly competitive market exists for wheat. The inverse demand is P = 100?Q where P is the price of wheat and Q is the total quantity of wheat. The private total cost for the unregulated market to produce a quantity of Q is 50+80Q +0.5Q 2 . The production of wheat creates some pollution where the total externality cost is EC = Q 2 . Task 1: Solve for the free market competitive equilibrium of wheat. Task 2: Solve...
Consider the following inverse demand function, p(Q) = a-bQ, Q = q1 +q2, where a and...
Consider the following inverse demand function, p(Q) = a-bQ, Q = q1 +q2, where a and b are positive parameters and qi denotes firm i's output, i = 1, 2. Assume that the total cost of firm i is cqi2/2, with c > 0. Firms choose quantities simultaneously and non cooperatively (Cournot competition). The Cournot game described above is infinitely repeated. Firms use grim trigger strategies (infinite Nash reversion). Firms discount future profits at a rate r > 0. a)...
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...
Two firms compete in a homogeneous product market where the inverse demand function is P =...
Two firms compete in a homogeneous product market where the inverse demand function is P = 10 -2Q (quantity is measured in millions). Firm 1 has been in business for one year, while Firm 2 just recently entered the market. Each firm has a legal obligation to pay one year’s rent of $0.5 million regardless of its production decision. Firm 1’s marginal cost is $2, and Firm 2’s marginal cost is $6. The current market price is $8 and was...
Two firms compete in a homogeneous product market where the inverse demand function is P =...
Two firms compete in a homogeneous product market where the inverse demand function is P = 20 -5Q (quantity is measured in millions). Firm 1 has been in business for one year, while Firm 2 just recently entered the market. Each firm has a legal obligation to pay one year’s rent of $1 million regardless of its production decision. Firm 1’s marginal cost is $2, and Firm 2’s marginal cost is $10. The current market price is $15 and was...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT