Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Chapter 10, Problem 18SQ
To determine
The
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Bertrand’s original analysis predicts that the perfectly competitive price and output occur if there is more than one firm in a market. Assume firms A and B are Bertrand competitors making identical products at identical cost Ci = 150qi and facing inverse market demand P = 1000 – 0.1Q. Assume further that there are no capacity constraints, and that if the firms charge the same price, consumers split their purchases evenly between the firms.
a. Assume A and B choose prices simultaneously but repeatedly, and that both adopt the Trigger strategy. Determine whether joint-profit maximizing is a sustainable equilibrium if the interest rate is 6% and there is a 35% probability of significant entry into the market that would eliminate future monopoly profits.
b. How would your analysis change if there were three identical Bertrand competitors rather than two? Why?
The inverse market demand in a homogeneous-product Cournot duopoly is P = 100 – 2(Q1 + Q2) and costs are C1(Q1) = 20Q1 and C2(Q2) = 30Q2.
a. What is the reaction function for each firm?
b. What is each firm’s equilibrium output?
c. What is the equilibrium market price?
d. What is the profit each firm earns in equilibrium?
21. In the industry, only two firms (Firm 1 and Firm 2) operate and they produce a
homogenous good. They collude: they maximize their joint profit and split it equally between
them. Firm I has the total cost of producing q; units of output given by the function TC(q)-8q1.
The total cost of producing q: units of output for Firm 2 is TC(q)-q. Only integer quantities
are allowed (no fractions). The market demand for the good is Q(P)-72-P, where Q is the
quantity demanded and P is the unit price of the good. How many units of the good do cach
firm produce in the equilibrium?
A. Each firm produces 14 units.
B. Firm I produces 32 units, and Firm 2 produces 2 units.
C. Firm 1 produces 28 units, and Firm 2 produces 4 units.
D. Each firm produces 16 units.
E. None of the above
Chapter 10 Solutions
Micro Economics For Today
Ch. 10.1 - Prob. 1YTECh. 10.5 - Prob. 1GECh. 10.6 - Prob. 1YTECh. 10 - Prob. 1SQPCh. 10 - Prob. 2SQPCh. 10 - Prob. 3SQPCh. 10 - Prob. 4SQPCh. 10 - Prob. 5SQPCh. 10 - Prob. 6SQPCh. 10 - Prob. 7SQP
Ch. 10 - Prob. 8SQPCh. 10 - Prob. 9SQPCh. 10 - Prob. 10SQPCh. 10 - Prob. 11SQPCh. 10 - Prob. 12SQPCh. 10 - Prob. 13SQPCh. 10 - Prob. 1SQCh. 10 - Prob. 2SQCh. 10 - Prob. 3SQCh. 10 - Prob. 4SQCh. 10 - Prob. 5SQCh. 10 - Prob. 6SQCh. 10 - Prob. 7SQCh. 10 - Prob. 8SQCh. 10 - Prob. 9SQCh. 10 - An oligopoly is a market structure in which a. one...Ch. 10 - Prob. 11SQCh. 10 - A common characteristic of oligopolies is a....Ch. 10 - Prob. 13SQCh. 10 - Prob. 14SQCh. 10 - Prob. 15SQCh. 10 - Prob. 16SQCh. 10 - Prob. 17SQCh. 10 - Prob. 18SQCh. 10 - Prob. 19SQCh. 10 - The kinked oligopoly demand curve is a result of...
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- Consider the following Stackelberg duopoly. Both 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. The market demand is Q= 100 – 4 P. For firm i, the total cost of production is TC(q) =5q,+2. What is the optimal quantity supplied by firm 12 10 20 30 40 QUESTION 6 Consider the following Stackelberg duopoly. Both produce a homogenous good. Firm 1 chooses how much to supply first. Firm 2 chooses how much to supply after observing the quantity supplied from firm 1. The market demand is Q= 100 - 4P. For firm i, the total cost of production is TC(q) =5q,+2. What is the market clearing price? O 10 O 15 20 O 25arrow_forwardQ3. There are two firms selling differentiated products. Firm A faces the following demand for his product: e, = 20 – -P, + -P, 2. Firm B faces the following demand: 1 P. +-P, 2. 0, = 220- Assume that the marginal cost is zero both for firm A and firm B. What are the equilibrium prices of a simultaneous price competition? What would the equilibrium prices be if A is the leader and B is the follower?arrow_forwardPlease solve D and E part only. Thankyou. Consider three firms, each with cost function C(qi)=4qi, currently competing Cournot. Market demand is P = 20 – Q. a. a. Find the quantities, price, and profits of each firm in equilibrium. b. Imagine firms1 and 2 merged to become one, so after the merger there are now two firms left in the market, firm 1&2 and firm 3. Assume there are no cost efficiencies expected and assume that the two firms play Cournot as before. Find the quantities, price, and profits of each firm in equilibrium c. Was it profitable for firms 1 and 2 to merge in the first place? d. Continuing with b., imagine that firms did not play Cournot after the merger, but rather that the merged firm 1&2 became a Stackelberg leader after the merger and firm 3 became the Stackelberg follower. If this were the case, find the quantities, price, and profits of each firm in equilibrium. e. Was it profitable for firms 1 and 2 to merge in the first place? Did price…arrow_forward
- Suppose that Raleigh and Dawes are the only sellers of bicycles in the UK. The inverse market demand function for bicycles is P(Y)=200-2Y. Both firms have the same total cost function: TC(Y)=12Y and the same marginal cost: MC(Y)=12. Suppose this market is a Stackelberg oligopoly, and Raleigh is the first mover. Write down a formula for the reaction function of Dawes. Calculate the equilibrium quantity that each firm produces and the equilibrium price in the market. Give typing answer with explanation and conclusionarrow_forwardThere are two soda firms Pepsi and Coke in Bertrand completion . They face demand with the following features: If their price is the lowest Q = 40-.5P, if their price is the same they face demand of half of the market, and if their price is the higher they face demand of zero. Both firms have a marginal cost of 10. Describe each firms reaction functions and the equilibrium price and quantity for each firm. Show your work and clearly mark your answers. Request: Please provide a graph if applicable and don't provide the handwritten answer. Thank you! Your help is much appreciated!arrow_forwardAssume firms' marginal and average costs are constant and equal to c and that inverse market demand is given by P = a - bQ where a, b > 0. Suppose now the market is served by 2 firms (one leader, and one follower) that choose quantities for their identical products. Calculate: i. ii. iii. iv. The Nash equilibrium quantities for the Stackelberg duopolists Market output Market price Firm profitarrow_forward
- Suppose an industry faces the demand curve: Q= 250 - P and MC = 4a. Find the Cournot reaction functions for the two firms. What are the Cournot duopoly equilibrium price, quantity, and profits?b. What are the Bertrand duopoly equilibrium price, quantity, and profits?c. What are the Stackelberg equilibrium price, quantity, and profits?arrow_forwardSuppose the market demand for ECO textbooks at the University is given by ?=1000−2?Q=1000−2P. The Marginal Cost of a textbook is $50. Suppose there are only two textbook publishers, both printing the exact same textbook. They compete in a Cournot manner. Suppose each firm produces ?=450q=450. Is this an equilibrium? Explain your reasoning, show all the steps of your working clearly. Keep your responses short and precise. Under 250 words is a good rule of thumb.arrow_forwardThe vertical distance between the average total cost curve and the averagevariable cost curve:(2)(1) Increases as output increases;(2) Decreases as output increases;(3) Is equal to total variable cost per unit of labour;(4) Is negative Q.1.10 Which one of the following is NOT a characteristic of an oligopoly? (2)(1) There are a few sellers and many buyers in the industry;(2) A firm in an oligopolistic market makes pricing decisions without consideringthe other firms in the market;(3) To reduce uncertainty in the market, firms may collude;(4) Barriers to entry is one of the key features of oligopoly.The vertical distance between the average total cost curve and the averagevariable cost curve:arrow_forward
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