Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denote price and total goods produced and the parameter A denotes the size of the domestic market. Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the market which produce q1 and q2, where Q = q1 + q2. a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups. b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are two firms? Provide some intuition for these predictions. c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q*, P* and markups? And why?

Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denote price and total goods produced and the parameter A denotes the size of the domestic market. Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in the market which produce q1 and q2, where Q = q1 + q2. a. Solve for the Cournot equilibrium levels of output (Q), price (P) and markups. b. What is the impact of an increase in market size, A, on Q, P and markups when there are two firms? Provide some intuition for these predictions. c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q, P and markups? And why?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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Suppose the inverse market demand for manufactures is P(Q) = A – Q, where P and Q denoteprice and total goods produced and the parameter A denotes the size of the domestic market.Suppose any firm has a cost function, c(q) = cq, where A > c. Suppose there are two firm in themarket which produce q1 and q2, where Q = q1 + q2.a. Solve for the Cournot equilibrium levels of output (Q*), price (P*) and markups.b. What is the impact of an increase in market size, A, on Q*, P* and markups when there are twofirms? Provide some intuition for these predictions.c. Suppose a third firm enters so that Q = q1 + q2 + q3. What is the impact of entry on Q*, P* andmarkups? And why? Explanation and math work for all three parts please!!
Suppose that there are two firms in an industry and they face market demand y=400-0.5p where y=y1+y2 . The total cost functions of the firms are C1(y1)= 40y1 and C2(y2)= 2y22. a) Assume initially that the firms enter into Cournot competition. Calculate the equilibrium market price and each firm’s equilibrium output. That is, find y1c, y2sand pc.b) Calculate the equilibrium market price and each firm’s equilibrium output assuming that firm 2 is the Stackelberg leader and firm 1 is the follower. That is, find y1s, y2sand ps.
The inverse market demand curve for salmon is given by P(Y) = 100 – 2Y, and the total cost function for any firm in the industry is given by TC(y) = 4y. a. Suppose that two Cournot firms operated in the market. What would be the reaction function for Firm 1 and the reaction function of Firm 2? (Notes: The marginal cost is not zero). If the firms were operating at the Cournot equilibrium point, what would the industry output and price be? b. For the Cournot case, draw the two reaction curves and indicate the equilibrium point on the graph
A) Suppose there are just two firms, 1 and 2, in the oil market and the inverse demand for oil is given by P = 90 – 3Q. The marginal cost for each firm is €18. Calculate the level of output that each firm would produce at the Cournot equilibrium. B) Suppose there are just two firms, 1 and 2, in the oil market and the inverse demand for oil is given by P = 60 – Q. The marginal cost for each firm is €36. What price should Firm 1 charge at the Cournot equilibrium? C) Consider the production function Q = 10KL. Will the MRTS for this production function remain constant along the Q = 200 isoquant? Explain briefly.
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Suppose that the market consists of 6 identical firms , that the market demand curve is P=200-2Q and that each firm's marginal cost is 32. The cournot equilibrium quantity per firm is q=_____________________ and the equilibrium quantity in the market is Q=______________________. The market price is P=$______________ per unit.
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Consider an industry comprised of three identical firms faced with a linear cost function given by: C(qi) = cqi; for i = 1; 2; 3. Let inverse market demand be given by: P(Q) = a - bQ; where Q = q1 + q2 + q3.a. Compute the Cournot equilibrium; that is, find prices, quantities, and profits.b. Suppose that firms 1 and 2 merge, converting the market into a duopoly consisting of the “superfirm” and firm 3. Compute the new Cournot equilibrium. Once again find prices, quantities, and profits.c. Suppose that all three firms merge. Compute quantities, prices, and profits for the cartel solution.d. Suppose that firm 1 and 2 represent two members of OPEC – Saudi Arabia and Venezuela, say – while firm 3 is a non-OPEC oil exporting country – Russia, say. Describe the dynamics of OPEC. (Hint: re-interpret the solution to part 2, as 1 firm deviating from the fully cartelized solution. Is it convenient to have a partial cartel?)
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. The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the firms independently produces a quantity of output, and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms. Firm 2 is known to have a cost advantage over firm 1. A recent study found that the (inverse) market demand curve faced by the two firms is P = 280 – 2(Q1 + Q2), and costs are C1(Q1) = 3Q1 and C2(Q2) = 2Q2. a. Determine the marginal revenue for each firm. b. Determine the reaction function for each firm.