1. Return to our Cournot competition model with two firms. Suppose now that the products aren't quite identical. In fact, both firms face different demand functions, P1 = a- b(q + dq2) P2 = a - b(dqı + 92) where d is some number between 0 and1 that specifies how similar the products are. Everything else about the model remains the same. (a) Calculate the best response functions for each firm. How does the slope of those best responses change with d? What happens when d= 0 or d = 1? (b) Calculate the equilibrium prices and quantities in this market. (Note: the firms are not identical).

1. Return to our Cournot competition model with two firms. Suppose now that the products aren't quite identical. In fact, both firms face different demand functions, P1 = a- b(q + dq2) P2 = a - b(dqı + 92) where d is some number between 0 and1 that specifies how similar the products are. Everything else about the model remains the same. (a) Calculate the best response functions for each firm. How does the slope of those best responses change with d? What happens when d= 0 or d = 1? (b) Calculate the equilibrium prices and quantities in this market. (Note: the firms are not identical).

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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Please no written by hand 1. Suppose the automobile manufacturing industry has two firms, General Motors and Ford. Assume that the market demand function is Q = 1,000 − p, and each firm’s marginal cost and average cost are $40. a. What is the marginal revenue for General Motors? Assume, ??? represent residual demand for General Motors and ?? represents residual demand for Ford. b. What is the best response function for General Motors and Ford? c. What is the Nash-Cournot equilibrium in this market? d. Graph the best response curves for both General Motors and Ford, placing the quantity produced by General Motors (???) in the x-axis. Label intercepts and Nash-Cournot equilibrium.
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The figure below shows the market conditions facing two firms, Brooks, Inc., and Spring, Inc., in the domestic market for large utility pumps. Each firm has constant long-run costs, so that MC0 = AC0. As competitors in a duopoly, there are a number of models to determine output and prices. Assume that the Bertrand duopoly model applies, so that they both set price equal to their marginal cost. Initial output in this market will be 16,000 per year (this is split between the two firms), at a price of $300. Suppose that Brooks, Inc. and Spring, Inc. form a joint venture, River Company, whose utility pumps replace the output sold by the parent companies in the domestic market. Assuming that River Company operates as a monopolist and that its costs equal MC0 = AC0, what is: (b) The price?
The figure below shows the market conditions facing two firms, Brooks, Inc., and Spring, Inc., in the domestic market for large utility pumps. Each firm has constant long-run costs, so that MC0 = AC0. As competitors in a duopoly, there are a number of models to determine output and prices. Assume that the Bertrand duopoly model applies, so that they both set price equal to their marginal cost. Initial output in this market will be 16,000 per year (this is split between the two firms), at a price of $300. Suppose that Brooks, Inc. and Spring, Inc. form a joint venture, River Company, whose utility pumps replace the output sold by the parent companies in the domestic market. Assuming that River Company operates as a monopolist and that its costs equal MC0 = AC0, what is: (e) The resulting deadweight loss from River Company operating as a monopoly?
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