Question

Suppose that the market demand for organic specialty rose hip jelly is given by:

? = 500 − 5?

There are only two firms, A and B, producing this product, each at a constant marginal and average total cost of $50.

Find the following for both firms under a Stackelberg market structure with A being the first mover (B reacts to A since A moves first).

A.) A’s Quantity [7]

B.) B’s Quantity [7]

C.) Industry Quantity [5]

D.) Price (this jelly is expensive! That must be a case of 20….) [7]

E.) A’s Profit [5]

F. ) B’s Profit [5]

G.) Industry Profit [5]

H. ) Order expected industry profits from greatest to least: [8]

a. Cournot

b. Collusive Monopoly

c. Bertrand

I. ) Questions regarding Bertrand market structure: [6]

a. What type of market structure does Bertrand resemble? This is in slides.

Hint: it probably the first market structure we talked about.

b. How much are profits under Bertrand?

c. What are firms choosing under Bertrand Market structure (Q or P)? How does this result in incentives that lead to the answer to part b?

Answer 1