Consider a Bertrand (price choice) model where firms have identical costs. The equilibrium price is the same whether there are two or three firms in the market. (a) True. (b) False.
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Consider a Bertrand (price choice) model where firms have identical costs. The
(a) True. (b) False.
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- An Australian firm and a US firm produce a homogeneous good that is sold only in Japan. The marginal cost of producing the good is constant and equal to 30 in both countries. The demand curve for the good in Japan is: P = 120-Q where Q = QA +QUS represents the sum of the quantities. produced by the Australian and the US firms, respectively. (b) Assume the Australian firm can commit to an output before the US firm. Solve for the Stackelberg Equilibrium price, sales and profits of each firm in Japan. Price profit AUS2 ,output_US2 profit_US2 output_AUS2Suppose the Boston to Philadelphia airline route is serviced by three airlines – US Airways (Firm A) and JetBlue (Firm B) and Continental (Firm C). The demand for airline travel between these two cities is Q = 150 – p. The cost function is C(Q) = 30Q. The cost function is the same for all three airlines. Assume that the three airlines are making investments in airline capacity. In other words, they are simultaneously choosing quantity. (Cournot Competition) Derive US Airways’ residual demand function given JetBlue’s output, qB, and Continental’s output, qC. What is the Marginal Revenue for US Airways? Derive US Airways reaction function Derive the market equilibrium quantity, Q*, price, p*, and Profit.A travel agency identifies two customer segments for a cruise ship. The demand curve for customers that are less price-sensitive is D1=1000-2P1. The demand curve for customers that are more price-sensitive is D2=1000-3P2. The cost of maintaining each cabin is $50. If one single price is charged, what is the price to maximize the profit? What is the profit? If the differential prices are charged to each customer segment, what is the price for each customer segment respectively? What is the total profit? What is the profit increase by charging different prices to each customer segment compared with one single price?
- There are two firms, wholesaler (W) and retailer (R). W supplies product to R, who then sells it to final consumers. W has a constant marginal cost of production equal to 0.2. W charges per unit price p to R, who has no other cost besides this. First, W chooses its price p. Then after observing p, R chooses the final consumer price x. Consumer demand for the final product is given by D(x)=1-x. Find the quantity of the final product sold in this market.The market for widgets is characterized by many buyers but only two producers, A and B. The market demand for widgets is given by: P = 500 − 10QD where QD = total demand for widgets Both producers face the same production cost, which is $120 in fixed cost and a constant variable cost of $20 per widget. Determine the profit-maximizing levels of output by producers A and B if they both choose the quantity of widgets produced simultaneously. What is the profit for each producer? If both producers collude, what is the equilibrium price and quantity? What is the profit for each producer? (You can assume the firms will share the market equally). Compare your answers to parts (a) and (b). Which outcome (collusive or non-collusive) would the producers prefer? Explain. Which outcome (collusive or non-collusive) is a more stable outcome? Explain. Note: Be sure to show your work.(A) Suppose that the two firms merge. Write down the profit function of the merged firm. Calculate the profit maximizing level of output, the amount of pollution for the merged firm, and its profit. Is the merger Pareto improvement? Why or why not? (B) Suppose that the merger is forbidden by the government. Instead, now the fishery has the property right to water. In other words, anybody who wants to pollute the water needs to buy a pollution right from the fishery. Let the price of the pollution right be Px. Write down the steel mill’s new profit function and the fishery’s new profit function. (C) Calculate the profit maximizing level of output for each firm, the amount of pollution, and the price of pollution right. please, please answer the three questions together..
- There are two sellers who compete by choosing quantity (Cournot). The inverse demand is P = 120 − Q. Each firm’s cost is 30Q. There are no fixed costs. In this market, firms decide how much to produce, and then the price is determined by the market (think of fishing boats, for example). Suppose that Firm 2 produces 30. Then the inverse demand facing Firm 1 is P = 120 − 30 − Q1 = 90 − Q1. This implies that Firm 1’s marginal revenue is 90 −2Q1. How much will Firm 1 produce to maximize its profits? Suppose that Firm 1 produces 30. Then the inverse demand facing Firm 2 is P = 120 − 30 − Q2 = 90 − Q2. This implies that Firm 2’s marginal revenue is 90 −2Q2. How much will Firm 2 produce to maximize its profits? If both firms produce 30, what are both firms’ profits? Suppose the buyers in this market proposed that the firms compete in a price game rather than a quantity game. For example, they might suggest that sellers compete in a price auction before production takes place. The winner…Question 2 Consider a market with two firms and a demand function = Р 1 Q. Note the price and quantity cannot be negative in the market. Both firms have 0 marginal cost. (a) Find the set of all possible prices that can be set in this market. Show whether this set is convex. (b) Suppose the rules of the market are as follows: whichever firm charges the lower price gets the entire demand (i.e. gets Q) while the other firm earns a profit of 0. If they charge the same price, the two firms share the entire demand equally (i.e. each firm gets 2). Suppose firm 1 charges a price p₁ = 3. Write down the profit function for firm 2 as a function of price and show whether this is continuous. (c) Consider firm 2's choice of price that maximises profit over the set you found in part (a). Can you use the Weierstrass theorem for this problem? Find a price that maximises profit of the firm.Question Consider a market with an inverse demand Function p = 60 -4*Q. There are two firms, an incumbent and an entrant. There is a constant variable cost of 6 and a unit capacity cost of 6. In the first stage, the incumbent chooses capacity. In the second stage, the entrant decides whether or not to enter and all active firms choose quantities (where the entrant also has to simultaneously choose its capacity in the second stage, if it enters). a. For a capacity of 5 units, what is the best response function of the incumbent in the second period? b. What is the Cournot-Nash equilibrium of the second stage if the incumbent chose a capacity of 5 units in the first stage conditional on the entrant entering? c. For a capacity of an arbitrary k units, what is the best response function of the incumbent? d. What is the Cournot-Nash equilibrium of the second stage if the incumbent chose a capacity of k units in the first stage conditional on the entrant entering? e. Solve for the subgame…
- Consider the following Stackelberg environment. There are three firms in the market. All firms produce a homogenous good. Firm 1 chooses how much to supply first. Firm 2 chooses how much to supply after observing the quantity supplied by firm 1. Finally, firm 3 observes the quantity supplied by firm 1 and firm 2 and chooses how much to supply. The market demand is Q=120-P. For firm, the total cost function is TC(q) = 20q, What is themarket clearing price? 32.5 20 25 18.75 4d) Explain what is meant by the term Paretooptimality.Explain whether the Pareto criterion is an efficiency criterion or a distribution criterion.Is the equilibrium of free competition Paretooptimal? p=320– 2x, e) Market demand for an item is provided by where p is the price of the p= 20+x. item and x is traded quantity. The market supply curve is provided by Find the market equilibrium during free competition and calculate the consumer surplus, producer surplus and socio-economic surplus.Illustrates graphically.In the Bertrand model, suppose that each firm has a marginal cost of £10 and that firm 1 sets a price of £9.99, which of the following a best-response for firm 2? Click all the correct answers. £10.01 £9.98 £10.00 £11.01 £9.99