Suppose that two firms produce a particular (homogeneous)product. The inverse demand function for the product is P = 100-Q. The firms have marginal cost equal to 10.(a) Derive the Cournot Nash equilibrium quantities, and thecorresponding price and profits. Show all work.(b) Suppose that the current price is the Cournot price youderived in part (a). Using the hypothetical monopolist test andassuming a 5% threshold for the test, does the good in questionrepresent an antitrust market? Show all work and explain youranswer. There are different ways to answer this question and anycorrect approach will be accepted.(c) Suppose more generally that marginal cost is equal to c. Forwhat values of c will this product represent an antitrust market?Show your work and explain your answer.Maximum size for new files: 400MBFiles

Answer- Given in the question- P = 100 -Q Q = Q1 + Q2 Q1 = Quantity of Firm 1 Q2 = Quantity of Firm…

Answered: Suppose that two firms produce a…

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:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 1E

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Ugly Dolls Inc. (UD) is a firm in Mytown that sells its products on a market under monopolistic competition. The cost function of UD is represented by TC = 100+10Q. Lately, because of the UD is making a big amount of profit, some firms enter the market to compete. If the number of firms entering the dolls market increase, we know that, 1. (a) The price of dolls will drop. (b) The average cost of UD will increase. (c) The quantity sold by UD will drop. (d) All the above answers are correct.
Company A and Company B are competing oligopolists. Both companies are considering increasing or maintaining their prices The payoff matrix shows the profits of the companies in millions based on their possible actions. Company B Increase Price Maintain Price Company A Increase Price $50, $40 $35, 530 Maintain Price 555, $45 $60, $35 The government offers a $5 milon subsidy to maintain current pricing. What is the expected outcome of the new payoff matrix, given the subsidy? The Nash equilibrium changes, and both companies will maintain their prices O The Nash equilbrium changes, and both companies will increase their prices O The Nash equilibrium remains the same, and both companies will increase their prices O Company A wit increase its price, whie Company B maintains its price. O Company A will maintain its price, while Company Bincreases ts price.
Problem 3. Consider the following game with three firms. First, firms 1 and 2 si- multancously choose quantities q1 and q2 respectively. After observing firm 1 and 2's quantities, firm 3 chooses its quantity q3. There is no production cost and the inverse demand function is p= 12 – (91 +2 + 93). (a) Compute the SPNE of this game. (b) Give an example of Nash equilibrium s* with s = 4 and s, = 6 , that is not subgame perfect. game theory question
Individual A Cooperate Defect Individual B Cooperate 28, 28 34,8 Defect 8, 34 12, 12 Suppose individuals live in villages that are homogeneous by type and a fractions of their interactions takes place in their village, the rest occurring in the city where the types were mixed. The fraction of the population who are cooperators is a. a) Write the expected return functions for cooperate and defect as a function of s and a. b) Under which conditions does an interior equilibrium exist for the fraction of the population playing cooperate (a) c) If the interior equilibrium for a exists, is the interior equilibrium unstable or stable? d) Find the impact of higher s on the interior equilibrium for a. What intuitively does this outcome mean? Discuss your answer.
The two major scooter companies in India, ABC and XYZ, are competing for a fixed market. If both manufacturers make major model changes in a year, then their percentage market share not change. Also, if they both do not make major model changes, their percentage market share remains constant. If ABC makes a major model change and XYZ does not, then ABC is able to take away a% of the market away from XYZ, and if XYZ makes a major model change ABC does not, XYZ is able to take away b% of the market away from ABC. Express this as a 2 x 2 game and solve for the optimal strategy for each of the companies.
Exercise 1 Are the following statements true, false, or uncertain? Provide a brief explanation. (a) Some consumers strongly prefer Coke and some strongly prefer Pepsi. Statement: this means that Coke and Pepsi are not in the same market. (b) Consider a Cournot duopoly: demand is P(91-92)=40-91-92, marginal costs are constant at c = 10 for both firms. Statement: for any player, choosing a quantity q = 12 is a dominated strategy. (c) Consider an oligopoly. Suppose that one of the firms has the option to move before its opponents (instead of the firms deciding simultaneously). Statement: the firm will never strictly prefer to forgo this option. (d) It is optimal for a monopolist to choose a quantity such that Ed < 1. (e) The elasticity of demand for petrol is d= -2.4. The price of petrol is £5 per gallon and sales are 1 million gallons (per month). Statement: if the price of petrol falls by 1 percent, sales revenue will fall.
Consider a game where a potential market Entrant is trying to decide whether or not to enter the market. An Incumbent monopolist is established and can choose to cut the price, maintain the price, or raise the price in hopes of deterring the Entrant from entering. Incumbent Entrant Enter Stay Out Cut Price -4,4 0,9 Maintain Price 4,6 0,12 Raise Price 5,5 0, 13 a) Suppose the Entrant and the Incumbent make their decisions simultaneously. Is there a pure strategy Nash equilibrium? If so, what is it? b) Suppose the players move sequentially, and that the Entrant moves first. Set up the game tree and solve for the equilibrium path. Can the Incumbent deter entry? Explain. c) Now suppose that the Incumbent moves first. Again, set up the game tree. What is the subgame perfect Nash equilibrium outcome now? Can the Incumbent deter entry now?
There are two firms in the market (duopoly). These two firms are competingsimultaneously. The first firm chooses its output level (x) by predicting the second firm’soutput (y). Let c denote the total cost function c(x) = x and c(y) = y. Also, let’s assumethat the inverse demand function is p(Y) = 7 - Y where Y = x + y. (1) Obtain the reactionfunction of the first firm. (2) Find the equilibrium (output and profit of each firm) whentwo firms simultaneously compete
Suppose there is only 1 consumer who has a demand of a product up to 1 unit per period. There are 2 periods. Her willingness to pay is $10 per unit. There are two firms, I and E. Firm I is the incumbent and is the only producer in the 1s period. Firm E is the potential entrant with 0 marginal cost but must incur an entry cost of $1 if entering this market. Firm I knows its marginal cost (c) but Firm E does not know for sure: it knows c is either 0 or 5. Without any further information/signal, Firm E believes the probability for either case is 50%. The timing of the game is the following: • Firm I sets the price in the 1" period (pi); • Firm E makes its entry decision; • Were “not enter" chosen, Firm I will remain as a monopoly in the 2"d period and set the price at $10. Were “enter" chosen, the two firms engage in Bertrand competition in the 2nd period. Lastly, assume both firms have a discount factor of 0.8.
Cournot’s Model of Duopoly) Joe and Rebecca are small-town ready-mix concrete duopolists. The market demand function is Qd=5500-25P, where P is the price of a cubic metre of concrete and Qd is the number of cubic metres demanded every year. The marginal cost is $40 per cubic metre. Competition in this market is described by the Cournot model. (a)Given Rebecca’s output is 2000, what is Joe’s residual demand function? What is Joe's output so he maximizes his profit? (b)If Rebecca’s output is qR, what is Joe’s best response function? (c)If Joe’s output is qj, what is Rebecca’s best response function? (d)Plot both Joe and Rebecca’s best response functions on one graph, where the the horizontal axis represents Rebecca’s output qR and the vertical axis represents Joe's output qR. (e)What is the meaning of the interception of the two best response functions?
A wholesaler (upstream firm) sells a product to a retailer (downstream firm). Both the wholesaler and the retailer are monopolists. The wholesaler faces a constant marginal cost of $2 and charges the retailer a wholesale price te: The retailer resells the product to final consumers at price P and the wholesale price to is its only cost. The demand for the good is P-12-Q. For your calculations below, assume that both the P and ware measured in dollars per unit. Hint. The retailer's profit function is (P-w)Q. a (8) Find the profit maximizing retail and wholesale prices and quantities b (2). Using your answers in (a), calculate the retailer's and wholesaler's profits Please do fast ASAP fast
A monopolist sells in 2 markets and produces in 1 factory. Although the monopolist can charge difference prices in the two markets, it must sell all units within a market at the same price. a) Suppose this monopolist does not have a marginal cost (MC = 0). If demand in market 1 isX1(p1) = a1 - b1p1 and demand in market 2 is X2(p2) = a2 - b2p2, set up the monopolist's profit maximization problems and solve for the market prices that result in each market. b) Under what conditions on a1, b1, a2, b2 from above will the monopolist not price discriminate? c) If demand in market i, where i = 1 , 2, is instead Xi(pi) = ai pi^(-bi) and the monopolist has some constant marginal cost of c, where c > 0, set up the monopolist's profit maximization problem and solve for the market prices.

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