Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 17, Problem 10P
To determine
Outcome of a negotiation between farmers and railway company.
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Suppose we have 5 people who might attend up to 2 theatre shows at the local theatre. There’s a drama and a comedy. The marginal cost of a seat on any given night is both constant and negligible (you can safely ignore it), so profit maximization and revenue maximization amount to the same thing. Below are the maximum willingness to pay values (a person will pay a price up to that value, but no greater) for a seat for each of the 5 people for the two shows.
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Imagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many
gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want
without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below:
Quantity
(in gallons)
10
|1
O b. $12
O c. $10
d. S8
2
113
14
לן
16
17
18
19
10
11
12
Price
$24
$22
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Total Revenue
(and Total Profit)
$0
$22
$40
$54
$64
$70
$72
$70
$64
$54
$40
$22
$0
Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. What will be the price of milk once Maria and Miguel reach a Nash
equilibrium?
a. $14
Assume that we have an entry situation like that in the Judo Economics example. There is an incumbent firm (I) and a new entrant (E). Now we will look at the outcome if the entrant is at a disadvantage. The incumbent has constant marginal costs of production of $100, while marginal costs for the entrant are $120 per unit. There are 100 identical buyers who are willing to pay $200 for the incumbent’s product, but only $160 to buy from the entrant. Any consumer can buy from the incumbent, but only those targeted by the entrant can buy from the entrant. Those consumers targeted by the entrant can choose to buy from the incumbent or the entrant and will choose the lowest price (with the incumbent winning ties). At the first move of the game the entrant decides how many consumers (N) to target and sets a single price (P) to those targeted consumers. The incumbent then sets a single price for all 100 consumers, deciding to defend the market or accommodate the new entrant. Consumers then…
Chapter 17 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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