ECON 4333-001 (online) Spring 2020 Homework Assignment #2-Revised MR This question is based on the figure above, which describes cost and demand conditions in the widget industry. Assume that costs functions to not vary according to market structure (competition vs. monopoly, for example). Complete the following table. All variables should be expressed in dollars. (Hint: use the Cowling and Mueller method for measuring consumer surplus and deadweight) Market Structure Price Quantity Economic Profit Consumer Surplus Dead Weight Loss Competition 500 400 Monopoly The following table illustrates the distribution of retail grocery sales in the Asheville, NC market: Market Retailer Share (%) Kroger 35 26 Wal-Mart Food Lion 12 Piggly Wiggly 8 IGA 7 The rest 4 each Compute the four-firm concentration ratio (CR4). Compute the eight-firm concentration ratio (CR8). Compute the Herfindahl (H) index. 2 Two firms, A and B, have complete control of the supply of mineral water and both have zero costs. Their best reply functions (BRP) are given by: qA = 10 - .5qB qB = 10 - .5qA Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph. The (inverse) demand function facing a mineral water monopolist is given by: P = 200 – 10Q The marginal revenue (MR) function is, therefore, given by: MR = 200 – 20Q Assuming again that marginal and total costs are zero, demonstrate that firms A and B have an incentive to cooperate and maximize joint profits. That is, compare profits earned in Cournot equilibrium to a situation of joint monopoly.

ECON 4333-001 (online) Spring 2020 Homework Assignment #2-Revised MR This question is based on the figure above, which describes cost and demand conditions in the widget industry. Assume that costs functions to not vary according to market structure (competition vs. monopoly, for example). Complete the following table. All variables should be expressed in dollars. (Hint: use the Cowling and Mueller method for measuring consumer surplus and deadweight) Market Structure Price Quantity Economic Profit Consumer Surplus Dead Weight Loss Competition 500 400 Monopoly The following table illustrates the distribution of retail grocery sales in the Asheville, NC market: Market Retailer Share (%) Kroger 35 26 Wal-Mart Food Lion 12 Piggly Wiggly 8 IGA 7 The rest 4 each Compute the four-firm concentration ratio (CR4). Compute the eight-firm concentration ratio (CR8). Compute the Herfindahl (H) index. 2 Two firms, A and B, have complete control of the supply of mineral water and both have zero costs. Their best reply functions (BRP) are given by: qA = 10 - .5qB qB = 10 - .5qA Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph. The (inverse) demand function facing a mineral water monopolist is given by: P = 200 – 10Q The marginal revenue (MR) function is, therefore, given by: MR = 200 – 20Q Assuming again that marginal and total costs are zero, demonstrate that firms A and B have an incentive to cooperate and maximize joint profits. That is, compare profits earned in Cournot equilibrium to a situation of joint monopoly.

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 14CQ

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Retailer Share (%)

Kroger	35 26
Wal-Mart
Food Lion	12
Piggly Wiggly	8
IGA	7
The rest	4 each

Compute the four-firm concentration ratio (CR₄).
Compute the eight-firm concentration ratio (CR₈).
Compute the Herfindahl (H) index.

Two firms, A and B, have complete control of the supply of mineral water and both have zero costs. Their best reply functions (BRP) are given by:

q_A = 10 - .5q_B

q_B = 10 - .5q_A

Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph.
The (inverse) demand function facing a mineral water monopolist is given by:

P = 200 – 10Q

The marginal revenue (MR) function is, therefore, given by:

MR = 200 – 20Q

Assuming again that marginal and total costs are zero, demonstrate that firms A and B have an incentive to cooperate and maximize joint profits. That is, compare profits earned in Cournot equilibrium to a situation of joint monopoly.

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