4. Suppose the market demand for a homogeneous product is given by Q = a-BP,where a and 3 are positive constants. The product is supplied by a dominantfirm with a constant marginal cost c> 0 and n competitive fringe firms, eachof which has a cost function c;(qi) = q//(2ki) for i 1, ..., n, where ki > 0 is aparameter. Suppose the dominant firm moves first to maximize its profits bysetting a price P, followed by competitive fringe firms setting their quantitiessimultaneously to maximize their profits, respectively, taking the price as given.=(a) Compute the equilibrium price and quantity level for each firm.(b) How does the presence of competitive fringe firms affect the equilibriumprice, as compared to the monopoly price by the dominant firm?

We have to find best response functions of competitive cringe firms and then find best response of…

Suppose the market demand for a homogeneous product is given by Q = a-Bl where a and 3 are positive constants. The product is supplied by a dominar firm with a constant marginal cost c> 0 and n competitive fringe firms, eac of which has a cost function ci(qi) = q?/(2k₁) for i = 1, ..., n, where kį > 0 is parameter. Suppose the dominant firm moves first to maximize its profits b setting a price P, followed by competitive fringe firms setting their quantiti simultaneously to maximize their profits, respectively, taking the price as giver (a) Compute the equilibrium price and quantity level for each firm. (b) How does the presence of competitive fringe firms affect the equilibriu price, as compared to the monopoly price by the dominant firm?

Suppose the market demand for a homogeneous product is given by Q = a-Bl where a and 3 are positive constants. The product is supplied by a dominar firm with a constant marginal cost c> 0 and n competitive fringe firms, eac of which has a cost function ci(qi) = q?/(2k₁) for i = 1, ..., n, where kį > 0 is parameter. Suppose the dominant firm moves first to maximize its profits b setting a price P, followed by competitive fringe firms setting their quantiti simultaneously to maximize their profits, respectively, taking the price as giver (a) Compute the equilibrium price and quantity level for each firm. (b) How does the presence of competitive fringe firms affect the equilibriu price, as compared to the monopoly price by the dominant firm?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter28: Antitrust And Regulation

Section: Chapter Questions

Problem 3E

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Suppose the market demand for a homogeneous product is given by Q = a - bP, where a and b are positive constants. The product is supplied by a dominant firm with a constant marginal cost c > 0 and n competitive fringe firms, each of which has a cost function ci(qi) = (qi^2)/(2ki) for i = 1, ... , n, where ki > 0 is a parameter. Suppose the dominant firm moves first by setting a price P, followed by competitive fringe rms setting their quantities, taking the price as given. a). Compute the equilibrium price and quantity level for each firm. b). How does the presence of competitive fringe firms affect the equilibrium price, as compared to the monopoly price by the dominant firm?
Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) = 40q. Thus the marginal and average cost for each firm is €40. Assume the demand curve for the industry is given by P = 100 - Q and that each firm expects the other to behave as a Cournot competitor. The price charged by each firm in the Cournot equilbrium is O A. C80 O B. €40 OC. €60 O D. C75
Consider a quantity-setting duopoly. The two firms are Alpha, Ltd. and Beta, Inc. The demand schedulein this market is:p Qd180 150155 175130 200Each firm has a constant marginal cost of 30 per unit. Suppose each firm can choose to produce either 75units or 100 units. Firms make their quantity choices simultaneously and the market price is whatever itneeds to be to sell the total output in the market.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs. Show your workdetermining the profits in each box in the matrix.(b) Determine the Nash equilibrium of this game.(c) Suppose the firms were able to come to an agreement to make more profit. What would this agreementbe?(d) Explain how the government might respond to such an agreement and why
Consider a quantity-setting duopoly. The two firms are Alpha, Ltd. and Beta, Inc. The demand schedulein this market is: p Qd180 150155 175130 200Each firm has a constant marginal cost of 30 per unit. Suppose each firm can choose to produce either 75units or 100 units. Firms make their quantity choices simultaneously and the market price is whatever itneeds to be to sell the total output in the market.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs. Show your workdetermining the profits in each box in the matrix.(b) Determine the Nash equilibrium of this game.(c) Suppose the firms were able to come to an agreement to make more profit. What would this agreementbe?(d) Explain how the government might respond to such an agreement and why.
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Glyde Air Fresheners is the dominant firm in the solid room aromatizer industry, which has a total market demand given by Q = 80 - 2P. Glyde has competition from a fringe of four small firms that produce where their individual marginal costs equal the market price. The fringe firms each have total costs given by TC; = 10Q; + 2Q²;. If Glyde's total costs are given by TCG = 100 + 6QG, what are the total profits of the fringe firms?
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