Question
In: Economics
Consider the constant elasticity Cournot example from class. Two firms are facing market demand D(P) =...
Consider the constant elasticity Cournot example from class. Two firms are facing market demand D(P) = A/P^ε . Firms have constant marginal costs c1 and c2 respectively. Derive the expression for the equilibrium market power m1 of firm 1. If c1 = c2, then how does m1 depend on ε?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Consider two identical firms in a Cournot competition. The market demand is P = a –...
Consider two identical firms in a Cournot competition. The
market demand is P = a – bQ. TC1 = cq1 =
TC2 = cq2 .
Find the profit function of firm 1.
Maximize the profit function to find the reaction function of
firm 1.
Solve for the Cournot-Nash Equilibrium.
Carefully discuss how the slope of the demand curve affects
outputs and price.
Consider a market with two firms, facing the demand function: p = 120 – Q. Firms...
Consider a market with two firms, facing the demand function: p
= 120 – Q. Firms are producing their output at constant
MC=AC=20.
If the firms are playing this game repetitively for infinite
number of times, find the discount factor that will enable
cooperation given the firms are playing grim trigger strategy.
Consider a modified example from class. There are 3 Cournot competitors in the market with P(Q)...
Consider a modified example from class. There are 3 Cournot
competitors in the market with P(Q) = 20 − Q. Marginal costs are
MC1(q1) = 10 − q1, MC2(q2) = 9 and MC3(q3) = 6. Firms 1 and 2
decide to merge. Does firm 3 win or lose from this merger?
1 Consider two Cournot competitive firms – with the following market demand function P=100-Q. The firms...
1
Consider two Cournot competitive firms – with the following
market demand function P=100-Q. The firms face constant marginal
costs, MC1 = 5 whereas MC2 = 25.
However, if they merge then the
marginal production costs would fall to 5.
Calculate the costs and benefits due to the merger for either
firm.
Is this merger Pareto improving for the economy? Explain.
A Bertrand competition does not necessarily gravitate towards
competitive prices in the equilibrium, with imperfect
substitutes.
In...
Two firms, firm 1 & firm 2, in a Cournot duopoly are facing the market demand...
Two firms, firm 1 & firm 2, in a Cournot duopoly are facing
the market demand given by P = 140 – 0.4Q, where
P is the market price and Q is the market quantity
demanded. Firm 1 uses old technology and has (total) cost of
production given by C(q1) = 200 + 15q1,
where q1 is the quantity produced by firm 1. Firm 2 has
managed to introduce a new technology to lower the per unit cost,
and its...
Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q...
Assume that two firms are in a Cournot oligopoly market. Market
demand is P=120 - Q where Q isthe aggregate output in the market
and P is the price. Firm 1 has the cost function
TC(Q1)=30 + 10Q1 and Firm 2 has the cost
function TC(Q2)=15 + 20Q2.
a) Write down the
Profit function of Firm 1:
Profit function of Firm 2:
b) Using the profit functions in part (a), obtain the reaction
function of Firm 1 to Firm 2....
Consider two identical firms competing as Cournot oligopolists in a market with demand p(Q)=100-0.5Q. Both firms...
Consider two identical firms competing as Cournot oligopolists
in a market with demand p(Q)=100-0.5Q. Both firms have total
costs,TC=10q where 10 is the marginal cost of production. ( Here Q
represents total output in the market whereas q represents firm
level output.)
(b) Now assume that the firms collude. They again
play a one-shot game. What is the output that each firm should
produce in order to sustain the collusion? Find the market price,
and profits of each firm. Are...
Demand in a market dominated by two firms (a Cournot duopoly) is determined according to: P...
Demand in a market
dominated by two firms (a Cournot duopoly) is determined according
to: P = 300 – 4(Q1 + Q2), where P is the
market price, Q1 is the quantity demanded by Firm 1, and
Q2 is the quantity demanded by Firm 2. The marginal cost
and average cost for each firm is constant; AC=MC = $77.
The cournot-duopoly
equilibrium profit for each firm is _____.
Demand in a market dominated by two firms (a Cournot duopoly) is determined according to: P...
Demand in a market dominated by two firms (a Cournot duopoly) is
determined according to: P = 300 – 4(Q1 +
Q2), where P is the market price, Q1 is the
quantity demanded by Firm 1, and Q2 is the quantity
demanded by Firm 2. The marginal cost and average cost for each
firm is constant; AC=MC = $68.
The cournot-duopoly equilibrium profit for each firm is
_____.
Hint: Write your answer to two decimal places.
1. Two firms compete in Cournot competition. Inverse demand in the market is given by P...
1. Two firms compete in Cournot competition. Inverse demand in
the market is given by P = 1500 − 3 Q and each firm has constant
marginal cost c = 420.
a) Assuming there are no fixed costs, find the Cournot
equilibrium market price and quantities produced by each firm.
(20 points)
b) Now suppose that each firm faces a non-sunk fixed cost of
20,000 if they produce at all. Would the firms still want to
produce the amounts you...
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