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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Chapter 15A, Problem 12E
To determine
To evaluate the payoffs that would be required under an optimal incentives contract, if the cost overruns at company ‘A’ became as likely as those at company‘M’.
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Your local county's electricity is supplied by two power plants which, due to anti-collusion laws, are
forbidden to communicate with each other when deciding what quantity of electricity to generate
and how much to charge for it. The price of electricity in the market is given by 340 - 0.03q1 -
0.015q2, where q1 is the amount of electricity sold by generator 1 and q2 is that sold by generator 2.
The cost function for generator 1 is 550 + 0.06q1 + 0.0002(q1)^2
The cost function for generator 2 is 600 + 0.04q2 + 0.0004(q2)^2
a) If the two power generators act as a Cournot duopoly, how much electricity will be produced by
generator 1?
b) How much power will be produced by generator 2?
c) What would the market price be?
Problem 2:
Presently, APlus Transport and Big Movers are the only suppliers of services that haul
heavy construction equipment between jobs within the Midwest. No other suppliers
have the equipment necessary to perform the service. The market inverse demand for
these hauling services is given below.
P = 4,030-4Q
where P is price per trip and Q is total number of trips per year. For simplicity, also
assume that neither firm has fixed costs. From company records, you are given the
following variable cost function for each firm:
a.
C.
TVC = 300
TVCB = 80QB
b. Calculate the Cournot market equilibrium price-output solutions for each firm
including their respective profits.
d.
Assume these two competitors operate as a two-firm Cournot duopoly. Find
the reaction functions for each firm.
Suppose Big Movers shuts down operations so that APlus now has a
monopoly in this market. What is the price, quantity, and profits for APlus after
this change?
Summarize the results of your findings over the…
Consider a profit-maximizing monopoly operating with marginal cost MC(Q) =
2+2Q and total cost VC(Q) = 2Q+Q² and FC = 0.05. The market
demand is estimated to be Q = 1000-10P.
If the monopoly owner decides to behave as perfectly competitor. Then
the profit-maximizing output in the short run is closest to
(1) 30.33.
(2) 44.54.
(3) 46.66.
(4) 100.54.
Chapter 15A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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