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: Cengage Learning
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Question
Chapter 12, Problem 2E
a)
To determine
To calculate: The long-run equilibrium output and the selling price for each firm.
b)
To determine
To calculate: The total profits for each firm and total industry at the equilibrium output
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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…
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-Qa-Qb
where QAQA and QBQB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are
TCa=1,500+55Qa+Qa2 TCb=1,200+20Qb+2Qb2
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 the marginal cost of 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…
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-Qa-Qb
where QAQA and QBQB, are the quantities sold by the respective firms and P is the selling price. The total cost functions for the two companies are
TCa=1,500+55Qa+Qa2 TCb=1,200+20Qb+2Qb2
Assume that the firms act independently as in the Cournot model (i.e., each firm assumes that the other firm’s output will not change).
For Company A, the long-run equilibrium output is and the selling price is $ .
For Company B, the long-run equilibrium output is , and selling price is $ .
At the equilibrium output, Company A earns total profits of $ and Company B earns total profits of $ . Therefore, the total industry profits are $ .
Chapter 12 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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