ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Apply It: Imperfect Competition Aplia Problem Sets
In Pasturetown, only Alex and Becky can raise free-range chickens on their farms. Assume that Alex and Becky can collect and sell a large quantity of
eggs at no cost and that free-range eggs sold outside Pasturetown cannot be transported into the town for sale.
Suppose that, in this market, Alex decides how many eggs per day he is going to sell, and then Becky makes her decision after observing Alex's
quantity choice. The market demand for eggs is given by Q=20-P. Based on this demand, Alex's and Becky's best-response functions are given on
the following graph.
BECKY'S QUANTITY (Gross of eggs per day)
20
18
10
6
N
Alex's BRF
Stackelberg Equilibrium
+Point 2
10 12 14 16
18
20
Becky's BRF
?
expand button
Transcribed Image Text:Apply It: Imperfect Competition Aplia Problem Sets In Pasturetown, only Alex and Becky can raise free-range chickens on their farms. Assume that Alex and Becky can collect and sell a large quantity of eggs at no cost and that free-range eggs sold outside Pasturetown cannot be transported into the town for sale. Suppose that, in this market, Alex decides how many eggs per day he is going to sell, and then Becky makes her decision after observing Alex's quantity choice. The market demand for eggs is given by Q=20-P. Based on this demand, Alex's and Becky's best-response functions are given on the following graph. BECKY'S QUANTITY (Gross of eggs per day) 20 18 10 6 N Alex's BRF Stackelberg Equilibrium +Point 2 10 12 14 16 18 20 Becky's BRF ?
Complete the first row of the following table by indicating the total production, market price, and profits for Alex and Becky when Alex chooses the
Stackelberg equilibrium quantity. Now suppose Alex wants to deter Becky from entering the market by forcing her to sell an output level that would
not be profitable. Complete the second row of the table with the values that would result if Alex were to sell 12 gross of eggs (Point 2) and Becky still
enters the market, and the third row of the table with the values that would result if Becky does not enter the market.
Becky's Revenue
(Dollars)
Stackelberg equilibrium
Point 2 (entry)
Point 2 (no entry)
Total Production
(Gross per day)
Market Price
(Dollars per gross)
Alex's Revenue
(Dollars)
Now suppose Alex wants to deter Becky from entering the market by forcing her to sell an output level that would not be profitable. Complete the
second row of the previous table with the values that would result if Alex were to sell 12 gross of eggs (Point 2) and Becky still enters the market, and
the third row of the table with the values that would result if Becky does not enter the market.
If there were a fixed cost of production equal to $17, then Becky would earn a profit of from entering the market at Point 2. Given that
she
be deterred from entering if Alex produces at Point 2, Alex maximizes his own profits by producing
at
expand button
Transcribed Image Text:Complete the first row of the following table by indicating the total production, market price, and profits for Alex and Becky when Alex chooses the Stackelberg equilibrium quantity. Now suppose Alex wants to deter Becky from entering the market by forcing her to sell an output level that would not be profitable. Complete the second row of the table with the values that would result if Alex were to sell 12 gross of eggs (Point 2) and Becky still enters the market, and the third row of the table with the values that would result if Becky does not enter the market. Becky's Revenue (Dollars) Stackelberg equilibrium Point 2 (entry) Point 2 (no entry) Total Production (Gross per day) Market Price (Dollars per gross) Alex's Revenue (Dollars) Now suppose Alex wants to deter Becky from entering the market by forcing her to sell an output level that would not be profitable. Complete the second row of the previous table with the values that would result if Alex were to sell 12 gross of eggs (Point 2) and Becky still enters the market, and the third row of the table with the values that would result if Becky does not enter the market. If there were a fixed cost of production equal to $17, then Becky would earn a profit of from entering the market at Point 2. Given that she be deterred from entering if Alex produces at Point 2, Alex maximizes his own profits by producing at
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