Question

In: Economics

20) The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is...

  1. 20) The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is P = 2500 – 2Q, which is produced at marginal cost MC = 100 for each firm. Market output Q = qA + qB (where A and B denote output of the two wineries.)
  1. The two wineries act as Cournot duopolists. Write out each firm’s best (reaction) response function and find the market price and output for each winery.
  2. Draw the best response functions and explain how the firms arrive at the equilibrium.
  3. Compare the price and output in part (a) to if the two wineries collude as a single-price non-discriminating monopoly.
  4. What would be the price and output in the market if both firms break the collusion agreement in part c and act as perfect competitors?

Solutions

Expert Solution


Related Solutions

The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is P...
The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is P = 2500 – 2Q, which is produced at marginal cost MC = 100 for each firm. Market output Q = qA + qB (where A and B denote output of the two wineries.) A) The two wineries act as Cournot duopolists. Write out each firm’s best (reaction) response function and find the market price and output for each winery. B) Draw the best response...
The market is comprised of the forces of Supply and Demand. Free societies rely on the...
The market is comprised of the forces of Supply and Demand. Free societies rely on the market to answer the fundamental questions: what, how, and whom? The market is like a pair of scissors that need both supply and demand to set prices people pay for goods and services. It is a natural order that works with nobody in control. There are supply and demand schedules as well as supply and demand curves. The supply curve is a graph of...
Table 1 below shows the schedule of demand and supply in the Market for Michigan wine....
Table 1 below shows the schedule of demand and supply in the Market for Michigan wine. Use this table to answer the following questions. Table 1 - Demand & Supply in the Market for Michigan Wine Market Price (P ) Quantity Demanded (Qd ) Quantity Supplied (Qs ) $0 150 0 $10 125 50 $20 100 100 $30 75 150 $40 50 200 $50 25 250 $60 0 300 Explain why a price of $40 cannot be an equilibrium price...
You are the manager of a wine company that produces output in two plants. The demand...
You are the manager of a wine company that produces output in two plants. The demand for your company's product is P = 78 − 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How much output should be produced in plant 1 in order to maximize profits? a. 1 b. 2 c. 3 d. 4
Construct a supply and demand diagram representing the entire market for Semillon wine. Your diagram will...
Construct a supply and demand diagram representing the entire market for Semillon wine. Your diagram will not contain data or numbers, but will show how supply and demand interact to generate prices and quantities. Call this initial equilibrium price P0 and the initial equilibrium quantity Q0. Present and explain (including all assumptions) the following changes on your diagram (that is, just one diagram showing all of i, ii and iii below) with the single end result of a new equilibrium...
The market for wine in Okanagan wine is initially in equilibrium represented by the intersection of...
The market for wine in Okanagan wine is initially in equilibrium represented by the intersection of the supply and demand curves. Beer is a close substitute for wine; cheese and wine are complements. Use demand and supply graphs to analyze the effect of each of the following (separate) events on the equilibrium price and quantity in the Okanagan wine market. Draw a separate graph for each event (5). a) The income of consumers falls (wine is a normal good). b)...
The market supply is given by P = 20 + Q. The market demand for good...
The market supply is given by P = 20 + Q. The market demand for good X is given by P = 100 - 2Q - PZ. PZ is the price of a related good Z. Find the market equilibrium for good X when PZ equals 38; denote the equilibrium as P1 and Q1. Find the market equilibrium for good X when PZ equals 44; denote the equilibrium as P2 and Q2. Using the midpoint method, the price elasticity of...
Beer Traditionally, Newland is a wine-drinking country. However, recent market research has shown that demand for...
Beer Traditionally, Newland is a wine-drinking country. However, recent market research has shown that demand for beer in Newland is steadily growing. RichBrew Inc. Of Richland, one of the world's largest beer producers, therefore wants to increase its exports of specialty beers, ordinary beer and non-alcoholic beer to Newland. Before its accession to the WTO, Newland limited the importation of beer of any kind to a meagre 50,000 hectolitres per year. This quantitative restriction was put into place in the...
Assume the market demand curve is given by QM = 20 – P and the fringe...
Assume the market demand curve is given by QM = 20 – P and the fringe firm supply function is QFF = -6+P. The dominant firm’s marginal cost is MC = 4 and fixed costs are zero. 1. Using a new graph, explain what happens to residual demand curve if the fringe supply curve becomes perfectly elastic at $6. Further assume the dominant firm MC is upward slopping with an equation of MC = -2 +Q. Same market demand function....
Demand for bowling balls in a market is given by the equation P = 20-2q. The...
Demand for bowling balls in a market is given by the equation P = 20-2q. The cost of each ball is $4. a) If firm A is the only firm in the market, how many balls will A produce? b) If firm B joins the market what is the equation for B’s reaction line? c) If both A and B are in the market, what is the equation for firm A’s reaction line? d) What is the Cournot equilibrium quantity...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT