Scenario1 There are two identical firms with zero marginal cost and they face a market demand curve of P=300 - Q for the good that they produce. Using Scenario 1: Respond to the following questions/statements using the Cournot Model How much profit does each firm make? Select one: a. $10 000 O b. $0 c. $1000 d. $5 000
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- True or false: In a perfectly competetive market, when AVP<P<ATC, a firm will not produce any output to minimize its costs. Explain why using a graph.Profit is the incentive that drives our market economy. Firms make production, pricing, andhiring decisions based on their quest for profit. But what happens when a firm discoversthat it can make dramatically higher profits by stopping production altogether? In December2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such adecision.Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs andfound itself in the unique position of being an electricity consumer and, potentially, anelectricity reseller. By December 2000, Kaiser faced a difficult decision of continuing itscurrent aluminium production and profit levels, or closing the plant to dramatically increaseits profit by simply reselling its electricity.When making production decisions, firms must consider both their costs and revenues. Oneimportant concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation inSpokane, Washington, entered into a…Profit is the incentive that drives our market economy. Firms make production, pricing, andhiring decisions based on their quest for profit. But what happens when a firm discoversthat it can make dramatically higher profits by stopping production altogether? In December2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such adecision.Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs andfound itself in the unique position of being an electricity consumer and, potentially, anelectricity reseller. By December 2000, Kaiser faced a difficult decision of continuing itscurrent aluminium production and profit levels, or closing the plant to dramatically increaseits profit by simply reselling its electricity.When making production decisions, firms must consider both their costs and revenues. Oneimportant concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation inSpokane, Washington, entered into a…
- Why do single firms in perfectly competitive markets face horizontal demand curves? A. With many firms selling an identical product, single firms have no effect on market price. B. With many buyers, single firms can sell as much as they want regardless of price. C. With many firms in the market selling a differentiated product, single firms have the ability to charge a constant price. D. With each firm facing a unique demand for its product, single firms can sell as much as they want regardless of price. E. Both a and b.Profit is the incentive that drives our market economy. Firms make production, pricing, andhiring decisions based on their quest for profit. But what happens when a firm discoversthat it can make dramatically higher profits by stopping production altogether? In December2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such adecision.Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs andfound itself in the unique position of being an electricity consumer and, potentially, anelectricity reseller. By December 2000, Kaiser faced a difficult decision of continuing itscurrent aluminium production and profit levels, or closing the plant to dramatically increaseits profit by simply reselling its electricity.When making production decisions, firms must consider both their costs and revenues. Oneimportant concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation inSpokane, Washington, entered into a…Short-run supply and long-run equilibrium Consiber the competitive market for rhodium. Assume that no matter how many firms operate in the induatry, every firm is identical and faces the same marpinal cost (MC), averapt total cost (ATC), and average variable cost (AVC ) curves plotted in the following praph. The following graph plots the market demand curve for thodium. If there were 10 firms in this market, the short-run equilibrium price of rhodium would be per pound. At that price, firms in this industry would. Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be firms operating in the rhodium industry in long-run equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit. True False
- Two firms facing a demand curve are P = 50 -5Qwhere Q = Q1 + Q2. The cost functions of the two firms are:C1(Q1) = 20 + 10Q1C2(C2) = 10 + 12Q2Based on this information:a. Suppose both companies have entered the industry, then what is the price?and the profit-maximizing amount for the two firms under conditionsperfectly competitive market?b. What is the quantity, price and profit of the two firms ifcompanies collude in pricing?c. What are the quantities, prices, and profits of the two firms if theydo the Cournot strategy, and draw the reaction curves of the twothe company?d. What are the quantity, price, and profit of the two firms if theycarry out the stakeberg strategy.Latoya runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $250. Her variable costs are $1,500 for the first thousand posters, $1,200 for the second thousand, and then $800 for each additional thousand posters. Instructions: Enter your answers rounded to two decimal places. a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? What if she prints 2,000 posters? What if she prints 10,000 posters? b. What is her ATC per poster if she prints 1,000? What if she prints 2,000? Check my work What if she prints 10,000? c. If the market price fell to 75 cents per poster, would there be any output level at which Latoya would not shut down production immediately? (Click to select)300 270 240 210 180 150 120 90 60 30 0 20 MC 32 40 50 60 70 80 The figure shows MC, MR and ATC curves for Joe's Good Enough Cafeteria, a firm that operates in a competitive market. If the firm is producing 50 units of output, increasing output by one unit would the firm's profit by $ Joe's SHORT RUN equilibrium quantity is equal to ATC Joe's LONG RUN equilibrium quantity will be MR If the firm is producing 70 units of output, increasing output by one unit would the firm's profit by $ and profit is $ and profit will be $
- Explain how purely competitive firms can use the marginal-revenue–marginal-cost approach to maximize profits or minimize losses in the short run.Suppose you’re operating one of only two coffee shops in town. Assume that both coffee shops produce identical coffee so that customers only care about the price. That is, you’re engaged in Bertrand competition. If you know that the other coffee shop charges $5 for a 16oz coffee, what price should you set for your 16oz coffee? Question 22Answer a. $4.99 b. $5.01 c. $5.00 d. $6 e. $47. A honey farm is located next to an apple orchard and each acts as a competitive firm. Let the number of apples produced be measured by A and the amount of honey produced by H. The cost functions of the two firms are CH (H) = H²/100 and C₁(A)=4-H. The price of honey is £2 and the price of apples is £3. 100 a. If the firms operate independently, what is the equilibrium number of apples and amount of honey produced? Are these amounts the Pareto-efficient? Explain. b. Suppose the two firms merge. What is the profit maximising amount of apples and honey that the merged firm produce? Explain. c. What is the socially optimum amount of honey and apples? Discuss methods to induce the independent firms to produce the socially optimal number of apples and amount of honey. Explain.