Consider a (homogeneous) product market comprising m sellers and n buyers, m>n>0. (i) Give an idea...

Consider a (homogeneous) product market comprising m sellers and n buyers, m>n>0. (i) Give an idea how one can model price determination in this market. (ii) Will the theoretical treatment change in the following cases (a) n>m>0 (b) n,m limit to infinity? Explain. {500 words}

Expert Solution

Rahul Sunny answered 2 years ago

Consider an industry comprising two firms producing a homogeneous product. The market demand and total cost...

Consider an industry comprising two firms producing a homogeneous product. The market demand and total cost equations are: P=200-2(Q_1+Q_2 ); 〖TC〗_i=4Q_i, where i = 1, 2. a. What is each firm’s reaction function? b. What are the market-clearing price, and output and profit of each firm?

Consider a market for used cars. There are 100 sellers and 100 buyers. The sellers know...

Consider a market for used cars. There are 100 sellers and 100 buyers. The sellers know the qualities of their cars, but the buyers only know that the quality θ of each used card is uniformly distributed over interval [0, 1]. The seller’s value of a car with quality θ is θ. (Thus, market supply is S(p) = 100p for 0 ≤ p ≤ 1 and S(p) = 100 for p > 1.) Each of 50 buyers values a car...

Consider a market with 22 sellers and 21 buyers. Of 22 sellers, there are 15 "high-cost"...

Consider a market with 22 sellers and 21 buyers. Of 22 sellers, there are 15 "high-cost" sellers with production costs of $30 per unit and 7 "low-cost" sellers with costs of $10 per unit. Of 21 buyers, there are 14 "high-value" buyers with values of $40 per unit and 7 "low-value" with values of $20 per unit. For this market, identify and graph the demand and supply curves. Finally, predict the equilibrium price and quantity in the market.

Problem I-A: Consider the following situation. There are M sellers of used cellphones on the market...

Problem I-A: Consider the following situation. There are M sellers of used cellphones on the market and many potential buyers who compete in Bertrand fashion to buy these cellphones. Assume cellphones can either be of good quality or bad quality. The reservation seller prices are $150 for a good quality phone, and $20 for a bad quality phone. Buyers are willing to pay up to $200 for a good quality phone, and up to $50 for a bad quality phone....

Consider a homogeneous system of linear equations with m equations and n variables. (i) Prove that...

Consider a homogeneous system of linear equations with m equations and n variables. (i) Prove that this system is consistent. (ii) Prove that if m < n then the system has infinitely many solutions. Hint: Use r (the number of pivot columns) of the augmented matrix.

Consider a market in which there are many potential buyers and sellers of used cars. Each...

Consider a market in which there are many potential buyers and sellers of used cars. Each potential seller has one car, which is either of high quality (a plum) or low quality (a lemon). A seller with a low-quality car is willing to sell it for $4,500, whereas a seller with a high-quality car is willing to sell it for $8,500. A buyer is willing to pay $5,500 for a low-quality car and $10,500 for a high-quality car. Of course,...

Consider a market for used cars. There are many sellers and even more buyers. A seller...

Consider a market for used cars. There are many sellers and even more buyers. A seller values a high quality car at 800 and a low quality car at 200. For any quality, the value to buyers is m times the value to sellers, where m > 1. All agents are risk-neutral. Sellers know the quality of their own car, but buyers only know that 2/3 of the cars are low quality and the remaining 1/3 of them are high...

For a market to be competitive, why is it important that there be buyers and sellers...

For a market to be competitive, why is it important that there be buyers and sellers and easy entry and exit?

Problem I-C: Consider the following situation. There are M sellers of used cellphones on the market...

Problem I-C: Consider the following situation. There are M sellers of used cellphones on the market and many potential buyers who compete in Bertrand fashion to buy these cellphones. Assume cellphones can either be of good quality or bad quality. The reservation seller prices are $150 for a good quality phone, and $20 for a bad quality phone. Buyers are willing to pay up to $200 for a good quality phone, and up to $50 for a bad quality phone....

I have stressed that both buyers and sellers face incentives that result in market prices approaching...

I have stressed that both buyers and sellers face incentives that result in market prices approaching equilibrium; neither buyers nor sellers find shortages or surpluses to be a long-term optimal outcome. But sometimes firms will deliberately set prices at a level they know to be higher or lower than the equilibrium price. One example (discussed in this TED Talk) is the market for sneakers, where shortages manifest every Saturday as “sneakerheads” line up to buy all of a store’s inventory...

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