- 1.7. In Section 1.2.B, we analyzed the Bertrand duopoly model with differentiated products. The case of homogeneous products yields a stark conclusion. Suppose that the quantity that con- sumers demand from firm i is a – p; when p¡ < Pj, 0 when p¡ > Pj, and (a − p;)/2 when p¡ = pj. Suppose also that there are no fixed costs and that marginal costs are constant at c, where c < a. Show that if the firms choose prices simultaneously, then the unique Nash equilibrium is that both firms charge the price c. -
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- Problem 1. HHI in the Bertrand Triopoly Equilibrium It's a Bertrand Triopoly - hence we know there are 3 firms in the industry-in-question, who competes in "price". The inverse demand functions for Firm 1, 2, and 3 are as follows: q1 = 40 - 1.5p1 +0.5p2 +p3 q2 = 40 + 1.5p1 - 3p2+p3 q3 = 40 + 2p1 + 1.5p2 - 4p3 For each firm, the marginal cost of production is $2.50/unit produced and sold. Apparently, the firms' products are differentiated. You cannot impose symmetry across firms. Therefore, please solve each firm's profit maximization problem, impose equilibrium, and solve for each firm's "action" in equilibrium. After that, please calculate the Herfindahl- Hirschman Index (HHI) in the industry in equilibrium.1. Suppose an industry consists of two identical firms. Industry demand is P = 100 – 2Q and MC = 20. a. Solve for Cournot-Nash equilibrium firm quantities, industry quantity, price and firm profits. b. Suppose another firm with identical cost structure enters the market. Solve for equilibrium firm quantities, industry quantity, price and firm profits. c. Now, Suppose the 3 firms follow a Bertrand pricing model. Solve for the Bertrand equilibrium firm quantities, industry quantity, price and firm profits.Consider a homogeneous-product Cournot ollgopoly of 3 firms with cost functions TC(a) = 24, Sup- pose that the Inverse demand function Is P(Q) = 30 - Q. (a) Solve for Cournot-Nash equilibrlum. (b) Firm 1 and Firm 2 merge Into Firm A. Solve for the new Cournot-Nash equilibrlum. Provide an Intultive explanation for the decrease In the combined profit of the merged firms.
- Consider a duopoly market with 2 firms. Aggregate demand in this market is given byt Q = 500 – P, where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MC = 20, i=A,B. « Assume the firms compete a la Cournot. e a) Find the inverse demand in this market. Note that marginal revenue for both firms is given by MRA=500-2QA-QB, MRB=500-QA-2QB. b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm. d) What are the equilibrium quantities? e) What is the total quantity supplied on this market? f) What is the equilibrium price in this market?1. Consider two duopolists who each have a constant marginal cost c = e2 = 3 and face inverse demand P = 15 – Q,where Q = Q1 + Q2 is the total output of both firms. 1. Find the Cournot equilibrium quantity for each firm, the resulting market price, and the profits for each firm. 2. Find the Stackelberg equilibrium quantities for each firm, and the price, and the profits for each firm supposing that Firm 1 is the industry leader. 3. Suppose that Firm 2 figures out a way to lower its marginal cost to ez = 0 while firm 1 still has a marginal cost equal to 1: c = 3. How does this affect the Cournot equilibrium quantities, price, and profits? 4. How does this affect the Stackelberg equilibrium (with Firm 1 still as the leader) quantities, price, and profits?8. Suppose there are two identical firms in an industry who compete by setting quantities. The output of firm 1 is denoted by q1 and that of firm 2 is denoted by 92. Each firm faces a constant marginal cost of 3. Let Q denote total output, 1.e. Qq1 +42. The inverse demand curve in the market is given by P-15-Q (a) Find the Cournot-Nash equilibrium quantity produced by each firm and the market price. (b) If the firms could collude, what would be the total output in the mar- ket? Assuming each firm produces half of the collusive output, what is the profit of each firm?
- Help me pleaseQUESTION 5 Consider the Cournot model of quantity competition. In the Nash equilibrium, firms always end up producing more than a monopolist would produce. O True O False3) Assuming that firms compete a la Cournot, that all firms have the same marginal cost, and that demand is linear, when is price most sensitive to changes in marginal cost: in a market with very few firms or in a market with many firms? Show this formally. [Hint: assume demand p = a - bQ] Bertrand duopoly with b) differentiated products. Demand curves are Consider a given by |p! = 600 – 2q! " p" = 600 – q! - 2q" Suppose that the cost functions are given by (q#) = 60q# , for i = 1, 2. Find the equilibrium outputs, the prices and the profits.
- 3. Consider a duopoly with a demand curve given by P = a -bQ, where a and b are positive constants and Q is the total production by the two firms. Firms sell identical goods and have an identical constant marginal cost of production c. Fixed costs are equal to zero. We assume firms choose quantities simultaneously (Cournot competition). a. Obtain the first order condition of profit maximization for each firm. Use graphical analysis and economic intuition to explain what they represent. b. Obtain the profit maximizing quantity for each firm. Explain what they represent using game theory concepts c. Demonstrate using relevant graphical analysis and economic intuition that the results obtained in b are not a Pareto Optimum for the firms involved. d. How would the graphical analysis in part a change if Firm A had a fixed cost of productiona) Suppose that the two firms engage in Cournot competition. Find the equilibrium price PNE in the industry, the equilibrium outputs QANE and QBNE, as well as the profits πANE and πBNE, for each firm. b) Suppose the marginal cost for firm B increases from $20 to $140, while everything else remains unchanged. Find the new equilibrium price PNE in the industry, the new equilibrium outputs QANE and QBNE, as well as the new profits πANE and πBNE for each firm. c) Suppose that, in addition to the marginal cost increase from $20 to $140 from sub question b), firm B also has a fixed cost of $2500, out of which $2100 may be recouped if it shuts down; everything else remains unchanged. In this case, what will firm B’s optimal output be? (Justify your answer.) What will firm A’s profit be?Refer to the figure at right. Two firms operating in the same market must choose between a collude price and a cheat price. Firm A's profit is listed before the comma, B's outcome after the comma. If each firm tries to choose a price that is best for it, regardless of the other firm's price, which of these statements is correct? O A. Both firms should charge a cheat price. OB. Firm A should charge the collude price; Firm B should charge a cheat price. C. D. Both firms should charge a collude price. Firm A should charge a cheat price; Firm B should charge a collude price. Cheat Price Firm A Firm B Cheat Price Collude Price Collude Price 18, 18 6,30 30,6 24, 24