Question

In: Economics

Suppose the market demand is Q=100-P. You are asked to find out how this market operates...

Suppose the market demand is Q=100-P. You are asked to find out how this market operates under perfect competition, monopoly and oligopoly, with the same market demand and cost structure for each firm.

  1. Suppose the industry is perfectly competitive. The long-run cost function of each firm is c(Q)=2Q. Calculate the market price, total quantity supplied of the market, and each firm’s profit (in the long run).
  2. Suppose there is a single firm serving the whole market, i.e. it is a monopolist. The cost function of the firm is c(Q)=2Q. Calculate the total quantity supplied of the market, the market price, and the firm’s profit. How do they compare with a)?
  3. Suppose the market is under duopoly. There are two identical firms playing Cournot competition, and the cost function of each firm is c(Q)=2Q. Calculate the total quantity supplied of the market, the market price, and each firm’s profit. How do they compare with b)?
  4. Suppose there are 3 identical firms playing Cournot competition, and their cost function of each firm is c(Q)=2Q. Calculate the total quantity supplied of the market, the market price, and each firm’s profit. How do they compare with c)?

Solutions

Expert Solution

b. as compared with a. part, the price has increased due to more monopoly power. Monopolist is able to reduce the quantity still making higer profits.

c. Due to Cournot competition (quantity competition), market quantity has increased. But due to fall in prices, the overall profit has declined as compared with part b.

d. Competition between three firms will increase the quantity and decrease the price. The overall effect is increase in profit as compared to part c.


Related Solutions

Suppose that the retail market for widgets has inverse demand curve P = 100 – Q....
Suppose that the retail market for widgets has inverse demand curve P = 100 – Q. Widget retailing is controlled by a monopoly retailer, R Inc., which obtains its widgets from the monopoly wholesaler W Inc. at a wholesale price of w per widget. In addition R Inc. incurs a cost of $2 per widget to promote the product and sell to consumers. Wholesaler W Inc. obtains the widgets in from monopoly manufacturer M Ltd. at a manufacturing price of...
Suppose, market demand p = 200 - 5q, and SRTC = 20q + 100. Find the...
Suppose, market demand p = 200 - 5q, and SRTC = 20q + 100. Find the equilibrium price (p*) and quantity (q*) in the monopoly. Show your work step by step
Demand in a perfectly competitive market is Q = 100 - P. Supply in that market...
Demand in a perfectly competitive market is Q = 100 - P. Supply in that market is Q = P - 10. (i) If the government imposes a $10 per unit sales tax, what is the consumer price, seller price, and quantity? (ii) Once the government imposes the tax, how much consumer surplus, producer surplus, and dead-weight loss is there?
A monopolist operates in a market of demand q = 10−p with a total cost of...
A monopolist operates in a market of demand q = 10−p with a total cost of C(Q, e) = (3/2)e^2 +(5−e)Q, where e represents effort. a. Calculate the price, effort, quantity, and welfare that results from an unregulated monopoly. b. A regulator establishes that price must equal marginal cost. The monopolist is free to select the level of effort. Calculate price, effort, quantity, and welfare in this situation. c. A regulator decides to force price equal to marginal cost and...
1. Suppose that the market demand is described by P = A – B(Q+q) where P...
1. Suppose that the market demand is described by P = A – B(Q+q) where P is the market price, Q is the output of the incumbent firm, and q is the output of the potential entrant to the market. The incumbent’s total cost function is C(Q) = c1Q, whereas the cost function of the entrant is C(q) = c2q+F. a. If the entrant firm observes the incumbent producing Q* units of output and expects this output level to be...
The market demand curve is given by p = 100 - Q Two firms, A and...
The market demand curve is given by p = 100 - Q Two firms, A and B, are competing in the Cournot fashion. Both firms have the constant marginal cost of 70. Suppose firm A receives a new innovation which reduces its marginal cost to c. Find the cutoff value of c which makes this innovation "drastic".
The market demand is given as; P = 100 – Q Marginal cost of production is...
The market demand is given as; P = 100 – Q Marginal cost of production is given as; MC = 10 Calculate the level at which market decides to produce and market price    Total Revenue ( TR) and Total Cost (TC) Economic Profit (π) Identify the market structure; either perfect competition or monopoly?
Consider a market for a homogeneous good with a demand curve P = 100 − Q....
Consider a market for a homogeneous good with a demand curve P = 100 − Q. Initially, there are three firms in the market. All of them have constant marginal costs and incur no fixed costs. The marginal cost for firms 1 and 2 is 20, while the marginal cost for firm 3 is 40. Assume now that firms 2 and 3 merge. a. Calculate the post-merger Cournot equilibrium quantities. b. Calculate the post-merger Cournot market quantity and price. c....
The demand for slurpees in a competitive market is P=100-2Q and supply is P=Q. What is...
The demand for slurpees in a competitive market is P=100-2Q and supply is P=Q. What is the equilibrium price and quantity? What is the value of the area of consumer surplus? What is the value of the area of producer surplus? What are the gains to trade in the market? Suppose the slurpee market is monopolized by one firm. Assume the supply function now represents the monopolist’s marginal costs schedule. The demand schedule is unchanged. What is the monopolist’s marginal...
The demand for potato chips in a comptitive market is P=100-2Q and supply is P=Q. -...
The demand for potato chips in a comptitive market is P=100-2Q and supply is P=Q. - What is the equilibrium price and quantity? - What is the value of the area of consumer and producer surplus? - What are the gains to trade in the market? Suppose the potato chip market is monopolized by one firm. Assume the suupply function now represents the monopolist's marginal cost schedule. The demand schedule is unchanged. - What is the monopolist's marginal revenue mathematically?...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT