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 4E
a)
To determine
To calculate: The optimum output and the selling price for each firm.
b)
To determine
To calculate:
The amount of total industry output is higher
c)
To determine
To calculate:
The higher quantity of the total industry profits
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Consider an industry with 4 firms with the same total cost function TC(q) = 20q. The demand function is p= 260 − 2Q. (a) Solve for Cournot equilibrium: how much each firm produces in equilibrium? What is an equilibrium price and profits? (b) What will be the profit of each firm if all the firms join the cartel? (c) If one of the firms wants to deviate from the cartel agreement, what output should it set? Calculate the profit of the cheating firm.
Consider two price-setting oligopolies supplying consumers in a certain region of a
country. Firm 1 employs many of the people living there and the local government subsidizes
its operations. In all other respects, the firms are identical-they have the same constant
marginal cost, MC = 4, and produce the same good. The demand function for Firm 1 is q1 =
600 - 50p1 - 20p2 and for Firm 2 is q2 = 600 - 50p2 - 20p1, where p1 is Firm 1's price and p2 is
Firm 2's price.
a. What are the Nash-Bertrand equilibrium prices and quantities without the subsidy?
b. What are they if Firm 1 receives a per-unit subsidy of S = 1? Compare the two equilibria.
Consider an industry that consists of 4 firms, all competing over the same market, given by the following demand equation: P=80-3Q All firms have the same Total Cost Function, given by: TC₁=10q,+2q Suppose the firms decide to collude and voluntarily restrict output and raise price, in order to increase profits. a) What price will be charged by the members of the cartel? Assume the head of the cartel is fair and distributes output q, equally among the 4 firms (since they have identical costs). b)What is the output of each individual firm? c) What is each individual firm's profit? We know that there is a built-in incentive for cartel members to cheat on the cartel. If, as a result, the cartel breaks down:
d) What price will be charged in the market? e) Assuming each firm captures an equal share of the market, what now is each firm's output, q? f) What now is individual firm profit?
g) Illustrate your answer
Chapter 12 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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