ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand function: P=200− Q A − Q B where Q A and Q B are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are TC A =1,500+55 Q A + Q A 2 TC B =1,200+20 Q B +2 Q B 2 Assume that the firms form a cartel to act as a monopolist and maximize total industry profits (sum of Firm A and Firm B profits). In such a case, Company A will produce units and sell at . Similarly, Company B will produce units and sell at . At the optimum output levels, Company A earns total profits of and Company B earns total profits of . Therefore, the total industry profits are . At the optimum output levels, the marginal cost of Company A is and the marginal cost of Company B is . The following table shows the long-run equilibrium if the firms act independently, as in the Cournot model…arrow_forwardTwo firms (called firm 1 and firm 2) are the only sellers of a good for which the demand equation is Here, q is the total quantity of the good demanded and p is the price of the good measured in dollars. Neither firm has any fixed costs, and each firm’s marginal cost of producing a unit of goods is $2. Imagine that each firm produces some quantity of goods, and that these goods are sold to consumers at the highest price at which all of the goods can be sold. A Cournot equilibrium in this environment is a pair of outputs (q1, q2) such that, when firm 1 produces q1 units of goods and firm 2 produces q2 units of goods, neither firm can raise its profits by unilaterally changing its output. Find the Cournot equilibrium. Determine whether the price at which the goods are sold exceeds marginal cost.arrow_forwardQuestion 1. In this question we begin by constructing a competitive market for a good, and then compare the outcome when supply is controlled by a single-price monopolist. Suppose that the demand for units of some beverage comes from households with the preferences over units of the beverage (x1) and expenditure on all other goods (x2) represented by the following utility function, U(x1,x2) = 800 In(x1) + x2 Each household has an exogenous income of I per period. The second 'good' is referred to as a 'composite' good and is an amount of money. We assume throughout that p2 = 1. (4 marks) Derive a household's ordinary demand functions, x1(P1, 1,1) and x2(P1,1,1) when they are price-takers in the market for the beverage. How large does the exogenous income need to be in order for the household to enjoy a positive amount of both 'goods'? i) (2 marks) Suppose there are 80 households who participate in the market for the beverage. Half of the households have an income of $1200 per period,…arrow_forward
- A monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is Pa = 90 - Qa' and the Japanese inverse demand function is P₁ = 80 - 2Qj, where both prices, På and p₁, are measured in dollars. The firm's marginal cost of production is m = $25 in both countries. If the firm can prevent resales, what price will it charge in both markets? (Hint: The monopoly determines its optimal (monopoly) price in each country separately because customers cannot resell the good.) The equilibrium price in Japan is $ (round your answer to the nearest penny) The equilibrium price in the U.S. is $. (round your answer to the nearest penny)arrow_forwardPlease answer all parts...arrow_forwardAdditional Problem 3: Assume two companies (C and D) are Cournot duopolists that produce identical products. Demand for the products is given by the following linear demand function: ? = 600 − ?C − ?D where ?C and ?D are the quantities sold by the respective firms and P is the price. Total cost functions for the two companies are ??C= 25,000 +100?C 2 ??D = 20,000 + 125?D c. Determine the equilibrium price and quantities sold by each firm. d.Determine the profits for the market as well as eachfirm.arrow_forward
- A monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is Pa = 120-Q₂. and the Japanese inverse demand function is P₁ = 100-2Q₁ where both prices, p, and p,, are measured in dollars. The firm's marginal cost of production is m = $20 in both countries. If the firm can prevent resales, what price will it charge in both markets? (Hint: The monopoly determines its optimal (monopoly) price in each country separately because customers cannot resell the good.) The equilibrium price in Japan is $. (round your answer to the nearest penny)arrow_forwardSuppose the monopolist with a marginal cost of 2 is facing two of customers i = {L, H} with the following demand functions: Customer H: qH Customer L: qL = = 6- PH 4- PL The consumer's total payment T;(q) is T;(q) = A; + piq with lump sum payment A and per unit price p. = a. Assume that the monopolist can distinguish between the two groups of consumers. Further, suppose that A₁ 0, meaning the monopolist is charging uniform prices. Find the profit maximizing price the monopolist charges customer H and the price the monopolist charges customer L. b. Assume that the monopolist can perfectly distinguish between the two groups of consumers and can utilize a lump sum payment A¡ > 0. Find the two part tariff the monopolist charges customer H and the two part tariff charged to customer L.arrow_forwardThe marginal cost of a product is fixed at MC = 20. The demand for the product is Q = 100 - 2P. (a) Now consider a Cournot model with two firms that are choosing quantities simultaneously. What is the best reply (best response) function for each firm? What is theNash equilibrium? What is the total surplus? (b)What do you expect the total surplus would be with three firms? Why? (You do not need to calculate an exact value. You can say ”total surplus is at least 100”, or ”total surplus is at most 80”)arrow_forward
- 2) Suppose that consumers of a good can be represented by the demand function Q (P) = 50 - P. The good is manufactured by an upstream monopolist with cost function C (q) = Q2 + 2Q + 10. A downstream monopolist resells the good to consumers (without further production activity) (a) Determine the industry outcome, profits and consumer surplus. (b) Consider a vertical merger. Compare the industry outcome, profits and consumer surplus to part (a). (c) Suppose the upstream monopolist franchises the product to the downstream firm. Which two - part tariff should the upstream monopolist choose? Determine the profits of the firms.arrow_forwardSuppose that the monopolist can produce with total cost: TC = goods in two different markets separated by some distance. The demand curves in the first market and the second market are given by Q = 120 - 2P, and Q2 = 240 - 2P,. Suppose that consumers can mail the product from cheaper location to a more expensive location freely (mailing cost $0). What would be the monopolist profit? 10Q. Assume that the monopolist sells its $8000 $7200 $6000 $6400arrow_forward3. Consider a monopolist engine producer and a monopolist car producer. The engine producer has a total cost of 0. Let Pu denote the price chosen by the engine producer. The car producer obtains engines from the engine producer. Each car requires one engine. The car producer has a fixed cost of 0 and a marginal cost of Py. Let PD denote the price chosen by the car producer. The demand for cars is given by QD = 20 - PD. (a) If the two firms are separate, what is the price and quantity of cars sold? (b) If the two firms are separate, what is the sum of the profits for the two firms? (c) If the two firms vertically integrate, what is the price and quantity of cars sold? (d) If the two firms vertically integrate, what is the profit of the resulting firm?arrow_forward
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