1. (25) Firms Acme and Best operate in a market with demand given by: P (Q)...

1. (25) Firms Acme and Best operate in a market with demand given by: P (Q) = 100 − Q. Each firm has costs given by: C(Q) = 10Q. Each firm has three possible output levels: 25, 30, and 40. For parts (a) through (c), assume that the firms simultaneously choose their output level.

(a) (10) Construct the 3 by 3 payoff matrix to illustrate the returns (in this case, the profits) from choosing the various output combinations.

(b) (5) What is Acme’s strategy? Is this a dominant strategy?

(d) (5) Now assume that the firms sequentially choose their output levels with Acme choosing first. Describe the game using a game tree.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Two firms operate in an industry with inverse demand given by p = 12 – q....

Two firms operate in an industry with inverse demand given by p = 12 – q. each firm operates with constant marginal cost equal to 0 and fixed cost equal to 4. Firms compete by setting the quantity to sell in the market . A) Determine the best reply function of each firm. b) Determine what are in equilibrium the quantities offered by each firm, the market price and the profits obtained by each firm. Assume now N firms operate...

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".

25.) Duopolists face a market demand curve given by P = 90 - Q where Q...

25.) Duopolists face a market demand curve given by P = 90 - Q where Q is total market demand. Each firm can produce output at a constant marginal cost of 30 per unit. There are no fixed costs. If the duopolists behave, according to the Bertrand model, determine the (1) equilibrium price, (2) quantity, and (3) economic profits for the total market and (4) the consumer surplus, and (5) dead weight loss.

1. In the market for coffee, demand is given by Q = 10 - P, and...

1. In the market for coffee, demand is given by Q = 10 - P, and supply is given by Q = P, where Q represents tonnes of coffee per year. Suppose that the world price is $6. The government has decided to impose an import tariff of $1 per ton of coffee per year. Which of the following is true? Consumer surplus will decrease Producer surplus will increase Total surplus will decrease All of the above None of the...

Consider an industry facing the market demand curve, p = 25 - 0.25 Q. Given the...

Consider an industry facing the market demand curve, p = 25 - 0.25 Q. Given the cost situation where average cost is equal to marginal cost which is equal to $10: (Points 35) (a) compute competitive price, quantity, profit and consumer surplus; (b) compute monopoly price, quantity, profit, consumer surplus and welfare loss ; (c) show that if a monopolist can further sell its product in the secondary market, then the welfare loss can be diminished.; (d) compute the price elasticity...

There are N symmetric firms in the industry, facing market demand Q (p) = 250-p Firms...

There are N symmetric firms in the industry, facing market demand Q (p) = 250-p Firms have a constant marginal cost of production of c = 10, and they compete in prices. a) What are the Bertrand equilibrium price, output levels, and profits? b) Suppose that the firms want to sustain the monopoly price using grim trigger strategies. Let each firm produce a share of 1/N of the total demand under collusion. Calculate the critical discount factor as a function...

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 ≥...

The inverse market demand for a homogeneous good is given by p = 1 – Q,...

The inverse market demand for a homogeneous good is given by p = 1 – Q, where p denotes the price and Q denotes the total quantity of the good. The good is supplied by three quantity-setting firms (Firm 1, Firm 2, and Firm 3) competing à la Cournot, each producing at a constant marginal cost equal to c > 0. a) Derive the best reply of Firm 1. b) Compute the Cournot-Nash equilibrium quantity and profits of Firm 1....

#1) Consider a market with demand curve given by P = 90 - Q . The...

#1) Consider a market with demand curve given by P = 90 - Q . The total cost of production for one firm is given by TC(q) = (q2/2)+10 . The marginal cost of production is MC = q . a) If the market is perfectly competitive, find the supply curve for one firm. Explain. b) If the market price was $10, how many perfectly competitive firms are in the industry if they are identical? Explain. c) Find an expression...

The market demand is Q=120-P, there are two firms on the market that engage in Stackelber...

The market demand is Q=120-P, there are two firms on the market that engage in Stackelber competition. Both firms have MC=0 and FC=0. How much more profit does Stackelber leader made compared to Cournot?

Subjects