The industry price leader sets the profit-maximizing price as represented in Figure 7.3 (below). Please answer the following questions: a. How much output does the dominant firm produce? b. How much output do the small firms produce? Figure 7.3 P 85 72 35 Small Firms' Supply 80 MR₁ 245 325 MC₁ D₁
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- Y6 Suppose that a market consists of 300 identical firms, all with the same cost curve: TC(4) = 0.1 + 150g?. The market demand is given by Qd(p) = 60 - p (a) What is the equilibrium price and quantity? (b) What quantity must each firm produce and sell at equilibrium? (c) Do firms make positive profits in the market equilibrium? (d) Calculate consumers' surplus, producers' surplus and total surplus.. (Requires calculus). In the model of a dominant firm, assume that the fringe supply curve is given by Q = -1 + 0.2P, where P is market price and Q is output. Demand is given by Q = 11 – P.What will price and output be if there is no dominant firm? Now assume that there is a dominant firm, whose marginal cost is constant at $6. Derive the residual demand curve that it faces and calculate its profit-maximizing output and price. highest bidder, but both the winning and losing bidders must pay her their bids. So if Jones bids $1 they pay a total of $3, but Jones gets the money, leaving him with a net gain of $98 and Smith with -$1. If both bid the same amount, the $100 is split evenly between them. Assume that each of them has only two $1 bills on hand, leaving three possible bids: $0, $1 or $2. Write out the payoff matrix for this game, and then find its Nash equilibrium.Consider the competitive market for ruthenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. 80 72 56 · ཉི་ ཀ་ཇཱ་སྐ་ན་ COSTS (Dollars per pound) AVC 16 MC- 8 ATC B 12 16 20 24 28 QUANTITY (Thousands of pounds) 36 The following graph plots the market demand curve for ruthenium. ? Use the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 20 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 30 firms. PRICE (Dollars per pound) 80 72…
- A firm with market power can divide its sales into two submarkets, the demands and marginal revenues of which are shown in the following diagram. $ Price, marginal revenue, and marginal cost (dollars) 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0 5 10 MRA 15 MRB 20 Quantity 25 DA 30 35 MC = ATC DB 40 (a) How many quantities of output should the firm produce? 1 45 Q (b) How many quantities should be sold to market A? How many quantities should be sold to market B? What price should be charged in each market? (c) Calculate the price elasticities at the prices charged in each submarket. Do these price elasticities have the expected relative magnitudes? Explain. (d) What is the amount of profit generated by the firm?The information in the table shows the total demand for water service in Takoma. Assume that there are two companies operating in Takoma. Each company that provides these services incurs an annual fixed cost of $400 and that the marginal cost of providing the service to each customer is exactly $2.00. Figures listed are for an annual service contract. Quantity 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 Price 60 55 50 45 40 35 30 25 b. Refer to Table 17-36. Suppose these 2 firms are price competing with each other (as what happens in a perfectly competitive market). What would total output be? a. 0 21250 12002. You are the Southeastern Michigan regional manager at Coca-Cola, responsible forproduction and pricing in the Metro Detroit area. Your primary competitor is Pepsi. The marketresearch team at Coca-Cola is thinking about launching a new product, Orange Vanilla Coke, toboost the brand. The cost function to produce a 12-pack of 12 fl. oz. cans of Orange VanillaCoke is C(qcoke) = 0.25qcoke and the market research team has estimated inverse market demandfor a 12-pack of this new “pop” in Southeastern Michigan to be P = 10.25 – 0.00025Q. a. Assuming Pepsi decides not to produce a similar product, allowing Coca-Cola to maintainmonopoly power in the market for orange vanilla cola, what price and quantity will youchoose to maximize profit? How much profit does Coca-Cola earn?b. What price and quantity you would choose to maximize profit if Pepsi spies discover yourproduct before launch, allowing Pepsi to produce and launch an identical product at the sametime. For your answer, assume the cost…
- Consider the competitive market for ruthenium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. COSTS (Dollars per pound), go 72 64 56 48 40 32 24 ATC 16 AVC MC- ☐ 0 4 8 12 16 20 24 28 32 36 40 QUANTITY (Thousands of pounds) The following graph plots the market demand curve for ruthenium.Explain why, in the absence of a patent, a technical innovation invented and pioneered in one tofu factory will cause the supply curve for the entire tofu industry to shift to the right. What will finally halt the rightward shift? Use supply and demand curves to demonstrate what happens. If the government grants a patent to the one tofu firm that developed the innovation, what type of market for the newly innovated and differentiated product would result (ieperfect competition, monopolistic competition, oligopoly, or monopoly)? Why would the government do this? What would happen to price and consumer surplus under a patent?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
- Suppose that each firm in a competitive industry has the following costs: Totalcost:TC=50+1/2q2 Marginalcost:MC=q where q is an individual firm's quantity produced. The market demand curve for this product is Demand:QD=120−P where P is the price and Q is the total quantity of the good. Currently, there are 9 firms in the market.1. Give the equation for the market supply curve for the short run in which the number of firms is fixed.2. What is the equilibrium price and quantity for this market in the short run?3. In this equilibrium, how much does each firm produce? Calculate each firm's profit or loss. Is there incentive for firms to enter or exit?4. In the long run with free entry and exit, what is the equilibrium price and quantity in this market?5. In this long-run equilibrium, how much does each firm produce? How many firms are in themarket?1. There is an industry consisting of 12 firms, each with total cost function given by TC(q) 3q² - 2q +867, where the fixed costs are non-sunk. The demand for the industry's product is given by Q¹ (p) = 448 - p per month. Firms are price takers. (a) Find the short-term equilibrium price, demand, the quantity produced by each firm, as well as firm's profit. What is the consumer surplus? What about the producer's surplus? (b) The government urgently needs to collect some extra tax revenues in the next four months to meet debt payments. This implies that it needs to collect the amount of T = 1000 per month from the industry. Calculate the tax level needed to raise this revenue depending on the type of tax. Which tax type is the better from a welfare perspective? i. An output tax of t per unit sold imposed on the firms. ii. 7-percent tax on firms' profits.DuopolyMarket for mechanical pencils can be described by the following demand schedule:Price | Number of pencils demanded$6 | 80$5 | 200$4 | 320$3 | 440$2 | 560$1 | 680$0 | 800The fixed cost is $340, while the variable cost is $0.50.d) If there were two firms on the market and they agreed to cooperate, how much would eachfirm need to produce? Follow the procedure outlined in the lecture and show that the otherfirm would prefer to deviate from the agreement.e) When the firms deviate from the agreement, there is a new optimal level of output. Showwhether the firms have an incentive to deviate from that level?f) If there were two firms on the market, what would be the price and the quantity of pencilstraded if the firms couldn’t cooperate?