Question

In: Economics

The gadget industry has four firms. All the firms have constant marginal cost, MC = 9...

The gadget industry has four firms. All the firms have constant marginal cost, MC = 9 and their fixed cost is zero. The market demand for gadgets is G = 400 − 40P, where G is the quantity of gadgets and P is the price of the gadgets.

a. If P = 8.5, how much would a firm would produce?

b. In a short-run equilibrium, it is possible to have an equilibrium price such that P > 9? Why or why not?

c. Assume that, in a short-run equilibrium, all the firms produce the same amount. What is the equilibrium price? What is the total supply? How much does an individual firm produce?

Expert Solution

The gadget industry has four firms. All the firms have constant marginal cost, MC = 9 and their fixed cost is zero. The market demand for gadgets is G = 400 − 40P, where G is the quantity of gadgets and P is the price of the gadgets.

---

a. If P = 8.5, how much would a firm would produce?

Since P is less than MC, each firm would produce zero output.

Each firm will require to atleast recover their variable costs in the short run.

---

b. In a short-run equilibrium, it is possible to have an equilibrium price such that P > 9? Why or why not?

Yes, it is possible to have equilibrium price P > 9 in the short run.

This is an oligopoly type market, where economic profits are possible.

It is possible that a firm charges a price higher than MC, and earns profits.

Since there are just four firms, they may find themselves in a strategic situation, where they compete on price or quantity.

---

c. Assume that, in a short-run equilibrium, all the firms produce the same amount. What is the equilibrium price? What is the total supply? How much does an individual firm produce?

If all firms produce the same amount, they may not be able to charge a price higher than MC.

If MC = 9,

G = 400 - 40 (9)

Total Supply G = 40 units

Equilibrium price = $9 per unit

Each firm produces (40/4 = ) 10 units

Rahul Sunny answered 1 year ago

Consider an industry in which all firms have constant marginal costs of 50, MC = 50,...

Consider an industry in which all firms have constant marginal costs of 50, MC = 50, and market demand is Qd = 385 - 0.5P (a) If there are two firms operating as Cournot duopolists, find the equilibrium price and total quantity (b) If there are two firms operating as Stackelberg duopolists, find the equilibrium price, how much the leader firm produces and how much the follower firm produced?

The Toy business has 4 firms. All firms have an identical marginal cost of MC =...

The Toy business has 4 firms. All firms have an identical marginal cost of MC = 9 and a fixed cost of 0. The market demand for Toys is T=200-20P were T is quantity and P is price of Toys. 1. If P=8.5 how much could a firm produce 2. In a short run equili. could the equili. price be P>9? 3. In a SR equili. all firms produce the same amount of toys. What is the equili price, total...

A Cournot oligopoly consists of four firms, each with a marginal cost of production of MC=10....

A Cournot oligopoly consists of four firms, each with a marginal cost of production of MC=10. The market demand curve is given by Q=(100-P)/3 . The four firms are looking to merge into a single firm so they can increase their profit margin by taking advantage of scale economies. Suppose that after the merger, market demand remains the same but the marginal cost of production of the merged firm decreases to MC=4. 26. What is the change in net social...

There are two firms in an industry with demand P=130-Q. Both firms have a constant marginal...

There are two firms in an industry with demand P=130-Q. Both firms have a constant marginal cost of production equal to $40. a) If there are no fixed costs what will be the Cournot equilibrium levels of output for each firm? (b) In part a), what is the market price and the profit for each individual firm? (c) If the fixed cost is instead $1300 for each firm and there is entry and exit in the market, how many firms...

Suppose a monopolist has constant (average and marginal cost of AC = MC = 8) and...

Suppose a monopolist has constant (average and marginal cost of AC = MC = 8) and faces demand such that QD = 100 - P. Derive MR curve (hint: you can calculate TR with Demand curve, then you can drive MR from TR) Calculate a monopolist’s profit-maximizing Quantity and Price Calculate the equilibrium Price and Quantity in the perfectly competitive market Draw all curves (Demand, MR, and MC curves) Calculate Monopoly Profit and Dead Weight Loss (DWL). Comparing the profit-maximizing...

Consider a price-setting oligopoly with 4 identical firms, all with constant marginal cost c. The firms...

Consider a price-setting oligopoly with 4 identical firms, all with constant marginal cost c. The firms compete for an infinite number of periods and have the same discount factor. Derive the minimum discount factor such that there exists a collusive equlibirum with monopoly pricing.

A monopolist can produce at a constant average and marginal cost of ATC = MC =...

A monopolist can produce at a constant average and marginal cost of ATC = MC = $5. It faces a market demand curve given by Q = 53 - P. 5. Suppose there are N firms in the industry, all with the same constant MC = $5. Find the Cournot equilibrium. How much will each firm produce, what will be the market price, and how much profit will each firm earn? Also show that as N becomes large, the market...

A monopolist sells in two states and has constant marginal cost MC =10. Demand in market...

A monopolist sells in two states and has constant marginal cost MC =10. Demand in market 1 is Q1 = 50- p1. Market 2 demand is Q2 = 90-1.5p2. a) If the monopolist is unable to discriminate price, what would be the profit maximizing price and quantity? b) If the monopolist can discriminate price between two states, what would the price and quantity in each market? c) Calculate the demand elasticity of each market and explain the price strategy.

Firms maximize profit by setting marginal revenue (MR) equal to marginal cost (MC). Assuming that the...

Firms maximize profit by setting marginal revenue (MR) equal to marginal cost (MC). Assuming that the MR curve is downward sloping and the MC curve is upward sloping, explain why is it not profit maximizing for a firm to be operating at an output level where MC is not equal to MR?

A monopolist in Ba can produce at constant marginal cost of MC = 10. The monopolist...

A monopolist in Ba can produce at constant marginal cost of MC = 10. The monopolist faces a market demand curve given by Q = 50 - P. You can assume that average cost is same as marginal cost. a) Calculate the profit-maximizing price-quantity combination for the monopolist. b) Compute the monopolist’s profits and consumer surplus. c) What output level would be produced by this industry under perfect competition? d) Calculate the consumer surplus obtained by consumers under perfect competition....