Question

In: Economics

Two oligopolies (Firm A and Firm B) have access to the same the same technology and...

Two oligopolies (Firm A and Firm B) have access to the same the same technology and have similar costs. FC = 0 MC = AVC = ATC = $100 Assume the demand of the product is given below: P=1000-Q Remember Q= q_A+ q_B Where q_(A ) is production by firm A and q_B-is production by firm B c) Now assume that the firms compete by setting quantities and they both move at the same time. Assume that the reaction functions for Firm A and B are given below. qa=450-.5qb reaction function firm AbPPposarQtS4PrK0P6AsfNa5J0CBpuMSTmpTMCGY qa=900-2qb reaction function firm BT79B8Hf9vkAAAAAASUVORK5CYII= i. Obtain the Nash-Cournot equilibrium and illustrate it in a diagram ii. Obtain the price of this product under these conditions iii. Obtain the profits of each firm. d) Now assume firm B is going to move first. Assume that once firm B moves, firm A will respond using their reaction function. i. Obtain qa and qb. ii Obtain the P of the market. iii Obtain economic profit of firm A and firm B iv. Who has the advantage the first mover or the second mover?

Expert Solution

Demand Function: P = 1000 - Q, Where Q = q_a + q_b

Reaction function of Firm A: q_a = 450 - 0.5q_b

Reaction function of Firm : q_a = 900 - 2q_b

c)

i.

ii.

Equating reaction function of firm B in reaction function of firm A, we get

450 - 0.5q_b = 900 - 2q_b

=> 1.5q_b = 450

=> q_b = 300, q_a = 300

P = 1000 -(q_a + q_b) = 1000 - (300 + 300) = 400

iii.

Total profit of both firm = TR - TC

=> P*Q - ATC*Q

=> 400*600 - 100*600

=> 240000 - 60000

=> 180000

Each firm profit = 90000

d) Now the firm B is going to move first. Once firm B moves, firm A will respond using their reaction function.

i. The demand function is P = 1000 - q_a - q_b

Profit for Firm B (_b)= TR - TC

= 1000q_b - q_aq_b - q_b² - 100q_b

= 900q_b - q_aq_b - q_b²

= 900 - q_a - 2q_b

=> q_b = 450 -0.5q_a

Substituting the reaction function of firm B in the profit function of firm A

Profit for Firm A (_a)= TR - TC

= 1000q_a - q_a² - q_aq_b - 100q_a

= 900q_a - q_a² - q_aq_b

= 900q_a - q_a² - q_a(450 -0.5q_a)

= 900q_a - q_a² - 450q_a + 0.5q_a²

= 450q_a - 0.5q_a²

= 450 - q_a

=> q_a = 450, q_b = 450 - 0.5(450) = 450 -225 = 225

ii.

P =1000 - (450 + 225) = 1000 - 675 = 325

iii.

Profit for Firm B (_b)= TR - TC

= 900q_b - q_aq_b - q_b²

= 900*225 - 450*225 - (225)²

= 50625

Profit for Firm A (_a)= TR - TC

= 900q_a - q_a² - q_aq_b

=900*450 - (450)² - 450*225

= 101250

iv.

The second mover has the advantage, here it is Firm A.

Rahul Sunny answered 1 year ago

Consider two countries, A and B, that have the same technology given by Y=L1/2N1/2. The two...

Consider two countries, A and B, that have the same technology given by Y=L1/2N1/2. The two countries have the same land area. The population growth function in countries A and B are given by g(c)=5c and g(c)=4c, respectively. For the periods from 0 to T-1 the economies were separated and at their steady states. However, at the beginning of time T, the wall between the two countries collapsed and the two countires were merged. Making certain assumptions, plot the time...

Two firms have the same technology and pay the same wages for labor. They have identical...

Two firms have the same technology and pay the same wages for labor. They have identical factories, but firm 1 paid a higher price for its factory than firm 2 did. They both maximize their profits and have upward-sloping marginal cost curves. Explain whether our theory would predict firm 1 to have a higher output than firm 2.

Firm A and firm B have the same expected returns, but different methods of financing. Firm...

Firm A and firm B have the same expected returns, but different methods of financing. Firm A has taken on debt in t = 0 and has to pay back 18735158.0864 in t = 5. Firm A has also issued 100000 shares in t = 0. Firm B has no debt, but has issued 120000 shares. Each share of firm B cost $250 when issued in t = 0. The annual interest rate is 6%. How much did one share...

Firms A and B produce exactly the same products, but use different production technology. Firm A's...

Firms A and B produce exactly the same products, but use different production technology. Firm A's variable costs are greater than those of Firm B, but its operating breakeven point is lower. From this information, other things held constant, we can conclude that Firm B has greater operating leverage than Firm A. true or false

Two bonds A and B have the same credit rating, the same par value, and the...

Two bonds A and B have the same credit rating, the same par value, and the same coupon rate. Bond A has 30 years to maturity and bond B has five (5) years to maturity. Please demonstrate your understanding of interest rates risk by answering the following questions: Discuss which bond will trade at a higher price in the market Discuss what happens to the market price of each bond if the interest rates in the economy go up. Which...

if stakeholders could only have access to two financial ratios for a firm, which two ratios...

if stakeholders could only have access to two financial ratios for a firm, which two ratios do you think they should select to review and why

Check all the following that are true. Oligopolies have a perfectly elastic demand curve Oligopolies have...

Check all the following that are true. Oligopolies have a perfectly elastic demand curve Oligopolies have an elastic demand above the prevailing price Oligopolies have an inelastic demand below the prevailing price the prevailing oligopoly price is at the intersection of the elastic and inelastic portions of the kinked demand curve Check all the following that lead to cost inefficiencies in monopoly. operating inefficiency costs of government regulation rent-seeking behavior competition with other firms income concentration charging at the lowest...

Two stars, A & B, have same color. This implies that a. Both stars emit same...

Two stars, A & B, have same color. This implies that a. Both stars emit same amount of light. b. Both stars located at equal distance from the earth. c. Both stars has the same temperature. d. None of the above 2. The horizontal axis of H-R diagram plots a. mass b. Luminosity c. apparent brightness d. temperature 3. Most stars (when plotted on a H-R diagram) would fall into a region called a. red giant b. main sequence c....

Person A and B both have the same income, and there are only two goods in...

Person A and B both have the same income, and there are only two goods in the market: good X has the price of $6, good Y has the price of $4. Considering A and B may have different bundles for purchasing good X and Y, but they are on the same budget line with the same MRT and MRS, will their consumer surplus always be the same? or does it depend on the bundles?

Two substances, A and B, have the same mass. Substance A is at a higher temperature...

Two substances, A and B, have the same mass. Substance A is at a higher temperature than B, and heat transfers between them until equilibrium is reached. The decrease in the temperature of A is less than the increase in temperature of B. Which substance has the larger specific heat?