Consider two firms competing à la Bertrand with homogeneous product. Suppose a third firm enters the market. Market power, measured by the Lerner Index, of the two firms already in the market: O (a) Always decreases for both firms O (b) Always decreases for the firm with higher marginal cost O (c) Decreases for both firms only if the new entrant has a lower marginal cost than the two firms already in the market O (d) None of the above

Consider two firms competing à la Bertrand with homogeneous product. Suppose a third firm enters the market. Market power, measured by the Lerner Index, of the two firms already in the market: O (a) Always decreases for both firms O (b) Always decreases for the firm with higher marginal cost O (c) Decreases for both firms only if the new entrant has a lower marginal cost than the two firms already in the market O (d) None of the above

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter15: Oligopoly And Strategic Behavior

Section: Chapter Questions

Problem 12P

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Please no written by hand solution Considerthe following problem. There are five firms producing a homogenous good and competing in quantities simultaneously. The demand function for this good is given by D(p) = 100−p, where p denotes price. The marginal cost is the same for all firms and equals 40 Answer the following questions. (a) Compute the equilibrium quantities and profits of each firm. (b) Now suppose that two of these firms (say firms 1 and 2) want to merge. (The remaining firms stay unchanged.) Merging, however, is costly. To merge, each merging firm has to pay a fixed cost F. Determine the highest fixed cost F that the two firms would be willing to pay in order to proceed with the merger.
A10 Consider an industry with 2 firms, each firm with marginal costs equal to 0. Market demand curve is given by Q=60- P. With 2 firms, we can write Q=Q1+ Q2 . Suppose that each firm behaves as a “Cournot” competitor, that is, choose the optimal quantity maximizing the profits in a strategic way.(a) What would be the values of Q1, and Q2 in equilibrium? (b) Suppose firm 1 can “commit” its level of output in advance. In other words, if firm 1 announces to produce Q1, firm 2 needs to decide how much to produce assuming that firm 1 would indeed produce Q1. What’s the level of Q1 firm 1 would choose to maximize its profit?
Consider a homogeneous-product Cournot ollgopoly of 3 firms with cost functions TC(a) = 24, Sup- pose that the Inverse demand function Is P(Q) = 30 - Q. (a) Solve for Cournot-Nash equilibrlum. (b) Firm 1 and Firm 2 merge Into Firm A. Solve for the new Cournot-Nash equilibrlum. Provide an Intultive explanation for the decrease In the combined profit of the merged firms.
1. Best responses in a Cournot Oligopoly Firm A and Firm B sell identical goods Total market demand for the good is: The inverse demand function is therefore 1 P(QM) = 780 -Q=780 -0.02222QM 45 QM is total market production (i.e., combined production of firm's A and B. That is: Q(P) = 35, 100- 45P 2M = A +QB As a result, the inverse demand curve for each firm is: P(QA, QB) = 780- -1/32₁-752 45 Unlike the example in class, the two firms have different costs. = 4000A TCA (QA) TCB (QB) = 260QB = 780 -0.022220A -0.02222QB a. Using the demand function and the cost functions above, what is firm A's profit function. b. Using the profit function above and assuming that firm B produces Qg, calculate what firm A's best response is to firm B’s decision to produce QB- Note: Firm A's best response should be a function of B
Scenario: Madison Company is a large manufacturer and distributor of cake supplies. It is based in Chicago(Headquarters) and Trinidad. It sends supplies to firms throughout the United States and the UnitedKingdom. It markets its supplies through periodic mass mailings of catalogs to those firms. Itsclients can make orders over the phone and Madison ships the supplies upon demand.The main competition for Madison’s in the United States comes from one U.S. firm and oneCanadian firm. A British firm has a small share of the U.S. market but is at a disadvantagebecause of its distance. The British firm’s marketing and transportation costs in the U.S. marketare relatively high. Given that one-third of the company sales are exported to the United Kingdom and invoices forexports are in US dollars, the demand for its exports is highly sensitive to the value of the Britishpound. In order to maintain its inventory at a proper level, it must forecast the total demand for itsproducts which is…
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Consider a simple monopolistic competition industry (many firms) in whicheach firm in the industry has one store. The store costs $200 per week andthe marginal cost is $10 per unit of output in addition to the fixed cost of the store. Hint: Mathematically this problem can be solved just like a monopoly problem. (a) If the typical the demand facing each individual firm is QD = 40−P eachweek, what price will a typical firm in this industry charge? (Hint: IfQD = 40 − P then P = 40 − QD and MR = 40 − 2QD). (b) Is the firm making a positive profit? What is the producer surplus? Whatis the profit after fixed costs? (c) Will new firms enter the market if demand stays the same and new firmsface the same demand and have the same costs? (d) In general, what is the long run profit of an average firm in a monopolistically competitive market.
*NOTE: Please only answer d, e and fTwo dairy farmers produce milk for a local town with local milk demand given by Q=100-1/3P(P denotes price measured in Rands, Q denotes the quantity measured in liters). Both farmers have the same cost function given by TC=150+2Q(where Q denotes output).(a) Determine the reaction function of each farmer. (b) Find the Cournot-Nash equilibrium. (c) Calculate profits for each farmer (d) Suppose that both farmers decide to form a cartel, determine profitsfor each farmer under the cartel (e) What output should farmer 1 produce if he/she expects their rival to produce 20 units? (f) Calculate the profits if farmer 2 decides to break the cartel agreement (g) Does joining a cartel offer any benefits to both farmers? Justify your answer (h) What if farmer 1 is a leader and farmer 2 a follower, determine the price, quantity and profits made by these two farmers.
Initially there are six firms producing differentiated products. The demand function for the good produced by firm i, i=1,2..,6, is given by qi = 10-2pi+0.3 summation pj where the sum is taken over the five prices other than firm i. Each firm has the same marginal cost c. The firms choose prices simultaneously; that is, they are differentiated products Bertrand competitors. (a) Solve for the symmetric Nash equilibrium prices. (b) Suppose that you observe each firm to set a price of 4.8. What must c be? (c) Suppose that two of the six firms merge to become a single firm. The firm continues to produce both goods. Using the marginal cost you found in (b), derive the new post-merger Nash equilibrium prices.
1. Two firms (A and B) play a competition game (i.e. Cournot) in which they can choose any Qi from 0 to ¥. The firms have the same cost functions C(Qi) = 10Qi + 0.5Qi2, and thus MCi = 10 + Qi. They face a market demand curve of P = 220 – (QA + QB). a. Assume firm A chooses quantity first. Frim B observes this choice and then chooses its own quantity. What is Frim B's profit as a function of QA and QB? b. Firm B has MRB = 220 – 2QB – QA. What is firm B’s best response to an arbitrary QA selected by firm A? c. Given that firm A expects firm B’s best response, what is firm A’s profit as a function of QA? (Hint: the only unknown variable in the profit function should be QA) d. Firm A has MRA = 150 – 4QA/3. What are the equilibrium QA and QB selected in this game? e. What is the equilibrium price, and how much profit does each firm collect?
Economics Bidding for Bookstore Licenses. Paige initially has the only license to operate a bookstore in Bookville. She charges a price of $13 per book, has an average cost of $3 per book, and sells 1,501 books per year. When Paige's license expires, the city decides to auction two bookstore licenses to the highest bidders. Suppose the relevant variables (price, average cost, and output per firm) take on only integer valueslong dash—no fraction or decimals. a. Suppose Paige is optimistic and imagines the best possible outcome with a two-firm market. What is the maximum amount she is willing to pay for one of the two licenses? $ nothing (Hint: How will the relevant variables change? What is the smallest possible change in their values?) b. Suppose Paige is pessimistic and imagines the worst possible outcome with a two-firm market. What is the maximum amount she is willing to pay for one of the two licenses? $ nothing (Enter your response as an integer.)
4. In 2056, there are two mining firms operating on the moon, extracting Helium 3. Once both firms have entered the market, they compete a la Cournot. The market inverse demand function is given by P(Q) = 8 – Q. Assume that both firms have the total cost functions = 2+ 2q. Let the star superscript* denote equilibrium quantities/prices/profits. Which C(q): of the following statements is true? (a) qi = 4 = 4 (b) qi > qž (c) p* = 6 (d) nj < T (e) Tỉ = = 2 5. Assume the same demand and cost structures as in question 4, but now firm 1 enters the market first and firm 2 follows, as in the Stackelberg model from lecture (both firms are guar- anteed to enter; the only choice is quantities produced). Which of the following statements regarding the equilibrium outcome is FALSE? (a) The first mover produces a greater quantity than the second mover (b) Total market output is Q* = 4.5 (c) The second mover will receive a negative profit (d) The first mover will receive a greater profit than the…