consider a market for two differentiated products. demand for good 1 is d1 = 1-p1 + 1/4p2 and demand for second is d2 = 1-p2 + 1/4p1 where p1 and p2 are prices of the goods. Suppose firm 1 produces good 1 and firm 2 produces good 2. All production costs are sunk, that is, firms supply at zero production cost. Assume that firms compete in prices. (a) Calculate the diversion ratio. b) Derive the reaction function of each firm and calculate the Nash equilibrium in prices.
Q: Game theory is: O a view on the development of children's games and toys. O the analysis of market…
A: Game theory basically refers to a branch of mathematics that studies strategic decision-making. It…
Q: A firm has the production function q = f(L, K) = min{L2, K2}. This firm has: increasing returns to…
A: The question is what magnitude that production function returns to the firm under consideration. The…
Q: Assume that two firms, Wilson and Spalding, can manufacture basketballs for the entire Norfolk…
A: Demand function: Here, The cost function is given as;Wilson is firm 1 and Norfolk is firm 2.
Q: Suppose the production possibility frontier for cheese-burgers (C) and milkshakes (M) is given by C…
A: Question aMaximum Cheeseburgers: If all resources go towards cheeseburgers (M = 0), then C = 600…
Q: Consider a version of the Phillips curve where a proportion of wages, 1>>0, are now indexed to the…
A: The Phillips curve establishes the relationship between inflation in time period t and unemployment…
Q: The figure below shows the national market for mopeds in a small country. Dd and Sd are the domestic…
A: A tariff is a tax or duty imposed by a government on imported or exported goods. The purpose of a…
Q: Which of the following would increase the consumption component of U.S. GDP? Select one: OA. A Baton…
A: GDP refers to the gross domestic product that refers to the monetary value of all final goods and…
Q: 3. Consider a one-consumer one-firm economy in which u(x) = ax2+xq, w = 1 and f(z) = z². (a) Derive…
A: In economics, the Pareto set consists of solutions where any improvement for one person inevitably…
Q: In the theory of perfect competition, the firm faces a demand curve that is and the market demand…
A: In the realm of perfect competition, firms operate within a market structure characterized by…
Q: Assume that the long-run level of output is Y = 1000, which the economy is also at initially in the…
A: IS curve is a part of IS-LM model. It is the general equilibrium of the economy where Aggregate…
Q: Suppose each firm of the industry has a short-run total cost curve of C=5+2q+q2, where q is output…
A: Total cost is the total cost of producing the goods. Total cost is the sum of total fixed cost and…
Q: **Practice** suppose that many insurance companies sell contracts of the following format: - The…
A: Please refer below for detailed explanations of the above question.Explanation:Step 1: 1: Answer A.…
Q: Assume that both Apple and Samsung have a marginal cost of 20. Apple’s payoff function is…
A: In oligopolies, Nash equilibrium emerges when firms optimize profits, factoring in competitors'…
Q: In small collegetowns, it is not uncommon that the rental market is dominated by one or a handful…
A: In this monopolistic rental market, the equilibrium quantity and price can be found as…
Q: meaning. 04.46 ← 2. Thus, given any one utility function, any monotonic transformation of it will…
A: The objective of the question is to understand the concept of monotonic transformations and their…
Q: Q7. Answer the following questions. (Use suitable graphs to explain your answers) (i) For the…
A: Engel demand curve represents the quantity demanded for a good at different levels of income keeping…
Q: Assume generic goods are inferior goods. Ceteris paribus, an increase in consumer income will cause…
A: It refers to the quantity(Q) of a service and item that consumers are willing and ready to purchase…
Q: Question 2 - The Mundell-Fleming model with a fixed exchange rate Consider the Mundell-Fleming model…
A: Given;To calculate the equilibrium exchange rate and find the effect of a fall in autonomous…
Q: The highway has a supply function of: t2=292 And the local road has a supply function of: t1=4+q1…
A: The transportation problems are the mathematical models of linear programming which considers the…
Q: 4. Which point should this firm choose to maximize revenues? Price ($) $600 (5,000, $550) (10,000,…
A: An oligopoly is a market arrangement where the majority of the market is controlled by a small…
Q: The figure illustrates an economy's Phillips curves. The following events are INDEPENDENT of each…
A: A negative relationship between inflation and unemployment is illustrated through the phillips…
Q: Why are income taxes on capital income more powerful than those on labour income? Taxes on capital…
A: Here we are given with 3 questions, first question is about, why are income taxes on capital income…
Q: Figure: Aggregate Expenditures Curve II Aggregate expenditures (per year) $800 Reference: Ref 11-16…
A: Aggregate expenditure refers to the total spending within an economy over a specific period,…
Q: 6. Suppose nominal GDP decreased by 1.5%. Over that year, the GDP deflator increased by 1.0%. From…
A: Real GDP is the macroeconomic indicator of the total economic output. The overall output is adjusted…
Q: Most modern central banks engage in inflation targeting instead of aiming at some nominal level of…
A: Central bank refers to the institution of a an economy that uses its monetary policy to maintain the…
Q: Only typed solution
A: The objective of this question is to evaluate the economic impacts of transitioning from a…
Q: Suppose that the fish processor could use a different production method that involves recycling…
A: The economic profit for recycling and non-recycling for the fish processor and the water park is…
Q: 5. The production function is given by y = x₁ + 2x2. If w₁ = 10, w₂ = 8, will the firm use input…
A: Microeconomic firm theory examines how companies optimize profits through production, resource…
Q: 2) Suppose that consumers of a good can be represented by the demand function Q (P) = 50 - P. The…
A: The monopoly market is represented by the single seller in the market. The single seller in the…
Q: Exhibit: Deposit Expansion Stages What is the required reserve ratio? Group of answer choices 1)…
A: The reserve ratio is the ratio or percentage of the deposits that the banks are required to keep to…
Q: Consider the strategic form game below: Suppose that both players have a discount factor of \delta =…
A: Game theory has a wide range of applications in current socioeconomics, including pricing tactics,…
Q: PRICE (Dollars per 1010 940 870 800 730 Pw 660 0 50 100 150 200 250 300 350 400 450 500 QUANTITY…
A: CS is the extra benefit consumers get from buying a product at a price(P) lower than their WTP or…
Q: **Practice** Consider a market with three firms. Each firm has a different cost function. We assume…
A: In oligopoly market structure, there are handful of suppliers and numerous buyers. Firms compete…
Q: What are the basic functions of money in the economy, and how do these functions help facilitate…
A: Cash plays an essential part in any economy., however understanding its fundamental capabilities can…
Q: An internet service provider (ISP) can lower their average cost to provide internet to a region by…
A: Markets facilitate the allocation of scarce resources.They allow purchasers and sellers to interact…
Q: Three mutually exclusive alternatives may replace the current equipment. Year A B с 012345 -$20,000…
A: MARR stands for Minimum Acceptable Rate of Return. It is the minimum rate of return that an investor…
Q: High-power experimental engines are being developed by the Stevens Motor Company for use in its new…
A: The objective of the question is to calculate a confidence interval for the average maximum…
Q: Suppose the demand curve for a monopoly firm’s product is given by P = 120 – 2Q. Marginal cost of…
A: The inverse demand function is given as The marginal cost is given as 8Q. The firm is a monopoly…
Q: A firm uses inputs L and K to produce output Q and the production function is Q = 5LK. The firm is…
A: A production function represents the relationship between inputs and outputs in the production…
Q: An economy is described by the following equations C = 300+ 0.5 (Y-T) Y* = 1000 T=180 IP 50 G 150 NX…
A: The objective of the question is to determine the policy that the government should implement to…
Q: Refer to Table III. Which quantity of output is the profit-maximizing level? Table III Quantity…
A: Total revenue is an important financial indicator that gives a quick overview of a business's…
Q: Consider a utility function with one consumption good q1 and one type of leisure q2 c) Show…
A: The change takes place in the consumption and demand of the person and their purchasing power as a…
Q: meaning. 04.46 ← 2. Thus, given any one utility function, any monotonic transformation of it will…
A: The objective of the question is to understand the concept of monotonic transformations and their…
Q: The following national income data are available for a country. All data are in billion dollars.…
A: Economic growth refers to the increase in the value of output or income in a country over a certain…
Q: This is a Hotelling model question There are two firms, A and B. Firm A has a marginal cost=$4,…
A: A best response function is a concept used to describe the optimal strategy that a player should…
Q: PRICE LEVEL (CPI) The following graph represents the short-run aggregate supply curve (SRAS) based…
A: Blank 1 : LessBlank 2 : Decrease Blank 3 : HigherBlank 4 : BelowBlank 5 : Higher The SRAS curve…
Q: 3. An industrial coal-fired boiler for process steam is equipped with a 10-year-old electrostatic…
A: The present worth of a project or investment refers to its value at present based on the associated…
Q: Assume that both the U.S. and Germany produce beef and computer chips with following costs: Unit…
A: Marginal Rate of Transformation (MRT): MRT represents the rate at which one good must be sacrificed…
Q: What was the diversity percentage for the writer's team of the "Full Frontal with Samantha Bee"?…
A: Question 11 Answer:As per the economics definition, diversity implies the composition of people in…
Q: How do changes in the interest rates set by a central bank influence the exchange rates between…
A: National banks change financing costs as a component of their money-related strategy to control…
Step by step
Solved in 4 steps with 13 images
- COURSE: MICROECONOMICS - Bertrand's ModelAssume that a market is supplied by 2 companies, whose total costs are: CTi = 100Respective demand of each is: q1 = 120 - 2p1 + p2 and q2 = 120 - 2p2 + p1It is requested to:(a) calculate the firms' profit and reaction function.(b) plot the market equilibrium price and reaction function(d) calculate equilibrium quantity produced by each firm(e) determine profits that both firms will have at equilibrium.Say in a market we haveDemand is P = 5 – 0.005QSupply is P = 0.00125Qa-you will have a graph with price on the vertical axis and quantity on the horizontal axis formost parts of this problem. You will want to show intercept values and equilibrium values withthe specific values from the problem (when you graph the supply show it go out at least to thesame level of Q as the Q intercept for the demand curve).b-what are the equilibrium price and quantity traded in the market?c-say the government levies an excise tax in the market of 50 cents that renders the supply tonow be P = .00125Q + 0.5 (essentially the supply curve shifts up by 50 cents at each quantity).What are the new equilibrium price and quantity traded in the market with this excise tax?d-did the market price increase by as much as the 50 cent tax? (compare the market priceincrease with the amount of the tax of 50 cents)e-what is then loss in consumer surplus from the tax? Do consumers like excise taxes?f-what is the elasticity…Exercise A.9 In a market only two firms produce a homogeneous good. You work on one of them and are tasked with drawing up the production strategy for the coming year. The two companies in the market have the same information and the objective of both is the maximization of their profit. You know: the inverse market demand curve of the good: P(Q)=200-2Q where Q = q₁ + q₂ , the function that represents the costs of your company and the rival company: C(qᵢ) = 20qᵢ (for i=1, 2), and the data in the following table, with the optimal decisions according to the different types of competition:C(qᵢ) = 20qᵢ and the data in the following table, with the optimal decisions according to the different types of competition: q1 q2 P Bertrand 45 45 20 Cournot 30 30 80 Collusion 22,5 22,5 110 a) What is more in your company's interest to compete or cooperate with the rival company? Keep in mind that explicit collusion agreements are illegal, so each…
- Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, What is the right amount of variety? Can there be too many varieties of shoes, for example?3. The components of marginal revenue Karim's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Karim initially produced eight trucks, but then decided to increase production to nine trucks. The following graph gives the demand curve faced by Karim's HookNLadder. As the graph shows, in order to sell the additional fire truck, Karim must lower the price from $80,000 to $40,000 per truck. Notice that Karim gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial eight engines because they are all sold at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial eight engines by selling at $40,000 rather than $80,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $40,000. PRICE (Thousands of dollars per fire engine) 220 200 180 160 140 120…Mo increase production from 5 O True O False 6 fire engines because the dominates in this scenario. True or False: If alternatively Mo's HookNLadder were a competitive firm and $160,000 were the market price for an engine, decreasing its price from $160,000 to $120,000 would result in a decrease in the production quantity, but an increase in total revenue.
- Omari's HookNLadder is the only company selling fire engines in the fictional country of Alexandrina. Omari initially produced five trucks, but then decided to increase production to six trucks. The following graph gives the demand curve faced by Omari's HookNLadder. As the graph shows, in order to sell the additional fire truck, Omari must lower the price from $160,000 to $120,000 per truck. Notice that Omari gains revenue from the sale of the additional engine, but at the same time, he loses revenue from the initial five engines because they are all sold at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial five engines by selling at $120,000 rather than $160,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $120,000. PRICE (Thousands of dollars per fire engine) ARBS228882R 200 140 2 Demand 5 QUANTITY (Fire engines) $…The car manufacturing market consists of100 identical factories, each with a marginalcost curve represented by MC =120 + 20where Q represents the amount of carsoffered.a) Derive the industry supply curve for cars.b) If the demand for cars is represented byP=250- 4Q, how many cars are bought atequilibrium?c) Calculate the aggregate consumer andproducer surplus at market equilibrium.This question is inspired on the recent evolution of electricity markets in Switzerland and the EU.Suppose a market consists of three producers:i. Firm 1 (photovoltaics) has a marginal cost of production od CHF 1 and can produce up to 100 MW/h;ii. Firm 2 (hydroelectric) has a marginal cost od production of CHF 5 and can produce up to 200 MW/H;iii. Firm 3 (gas) has a marginal cost od production of CHF 20 and can produce up to 200 MW/h.For simplicity, assume that there are no fixed costs of production.Consumers are willing to pay a constant amount of 25 CHF for each additional MW/h up to 500 MW/h. a) Draw a graph of supply and demand for this market.b) Calculate the price in the market and the profits of each company.
- Igrushka is a profit-maximizing firm producing wooden dolls-a capital-intensive good-which are sold in its home country, Russia, and abroad in France. Igrushka chose foreign production as a method of penetrating the French market and has to decide whether it is more efficient to directly invest in France to establish a production subsidiary or to license the technology to a French firm to produce its goods. On the following graph, AVCFrance is the average variable cost curve of a French firm producing wooden dolls. (This curve represents costs such as labor and materials.) The curve ATCSubsidiary represents the total unit costs Igrushka will face if it establishes a subsidiary in France. PER-UNIT COST (Dollars) 10 9 8 1 0 0 ATC 15 Subsidiary 30 45 60 75 90 105 120 PRODUCT (Thousands) AVC France 135 150 ? 42. MBI and Pear are the only two producers of computer. MBI started producing computers earlier than Pear. MBI's costs of production are given by C₁(y₁) = y? Pear's cost function is C₂(y₂) = 15 y₂ + y². The national demand for computers is y = 60 – p. a) Calculate the Stackelberg equilibrium in which MBI is the leader in this market. Indicate output levels, market price, and the profits of each firm. b) Suppose that both firms enter this market at the same time. Calculate the Cournot equilibrium and compare it to the situation in part (a).A competitive equilibrium is defined by the price P* and quantity Q*. Suppose theconsumers become less price sensitive, but the same price-quantity equilibrium is maintained.Illustrate the change on a graph, labeling the old and new linear demand curves. What happensto consumer and producer surplus?