(11) Assume two firms with the same constant average and marginal cost, AC= MC = 5, facing the market demand curve Q1 + Q2= 53 – P. Use the Stackelberg model to analyze what will happen if one of the firms makes its output decision before the other. a. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Find the reaction curves that tell each firm how much to produce in terms of the output of its competitor. b. How much will each firm produce, and what will its profit be? Compare your results to the Cournot Equilibrium.

(11) Assume two firms with the same constant average and marginal cost, AC= MC = 5, facing the market demand curve Q1 + Q2= 53 – P. Use the Stackelberg model to analyze what will happen if one of the firms makes its output decision before the other. a. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Find the reaction curves that tell each firm how much to produce in terms of the output of its competitor. b. How much will each firm produce, and what will its profit be? Compare your results to the Cournot Equilibrium.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.4P

See similar textbooks

Similar questions

The marginal cost of a product is fixed at MC = 20. The demand for the product is Q = 100 - 2P. (a) Now consider a Cournot model with two firms that are choosing quantities simultaneously. What is the best reply (best response) function for each firm? What is theNash equilibrium? What is the total surplus? (b)What do you expect the total surplus would be with three firms? Why? (You do not need to calculate an exact value. You can say ”total surplus is at least 100”, or ”total surplus is at most 80”)
COURSE: MICROECONOMICS - Stackelberg ModelIn a given market good there are only 2 firms that satisfy the demand, and their respective total cost functions are: CTi = 400 and the demand that is estimated is P = 120 - 2QIf the exception variable of both firms is the quantity they will produce, such that the decisions to produce are made sequentially firm number 1 will be the leader who decides the quantity to produce and firm number 2 (follower) decides based on the production of firm number 1, we ask:(a) quantity produced by each firm and its equilibrium price in the market.(b) Profit of each company at equilibrium and (c) Graph your results
Suppose market inverse demand function is p(y)=100-Yt where Yt is total production in the market. Assume that there are two firms with following marginal cost MC(firm 1)=Y1 MC(firm 2)=2*Y2+10 Assume that Yt=Y1+Y2 Set up profit function for both firms. What is the best response function of each firm by taking into account action of other firm? What output level is going to be produced by each firm in equilibrium? Assume that Firm 1 is leader in the market and going to act first. What will be the best response and output level of firm 2. What is difference between previous and new situation? Why? What is difference between Bertrand and previous competition? How would you like to find equilibrium price?
Q2. Consider a two-firms Cournot model with constant returns to scale. Assume also that the inverse demand function is P = 100 – 2Q, with marginal cost equal to 20for both firms, where Q = q1 + q2 . b) How do equilibrium outputs and profits vary when firm1’s cost changes. Draw a picture of this outcome.
There are two identical firms in an industry, 1 and 2, each with cost function , i = 1,2. The industry demand curve is P = 100 − 5X where industry output, X, is the sum of the two firms’ outputs (X1 + X2). (a) If each firm makes its output decisions on the assumption that the other will not react to its choices (the Cournot assumption), what is the equilibrium output for each firm? What is the equilibrium price? (b) Suppose that each firm takes it in turn to choose its level of output, on the assumption that the other’s output level is fixed. Would the process of adjustment be stable? (c) Suppose that firm 1 introduces a cost-saving innovation, so that its cost curve becomes C1 = 8X1. Firm 2’s cost curve and the industry demand curve are unchanged. What happens to the equilibrium quantity produced by each firm and to market price?
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.
An industry contains two firms producing homogenous goods, one whose costfunction is C(Q1) = 30Q1 and another whose cost function is C(Q2) = 30Q2. The demandfunction for the market is given by:P = 65 - QT where QT = Q1 + Q2. a. Assuming firms are choosing quantities according to the Cournot model, what iseach firm’s reaction function?b. Graph each firm’s reaction curve (on same graph).c. How much does each firm produce in the Nash equilibrium of Cournot's model?
Suppose the market demand for ECO textbooks at the University is given by ?=1000−2?Q=1000−2P. The Marginal Cost of a textbook is $50. Suppose there are only two textbook publishers, both printing the exact same textbook. They compete in a Cournot manner. Suppose each firm produces ?=450q=450. Is this an equilibrium? Explain your reasoning, show all the steps of your working clearly. Keep your responses short and precise. Under 250 words is a good rule of thumb.
This pertains to the Cournot model except that a. Both firms maximize profit b. Each firm anticipates the price movement of the other c. There are only 2 firms in the industry d. Each firm takes the output as given
1. Two firms compete in a market to sell a homogeneous product with inversedemand function P = 960-6Q. Each firm produces at a constant marginal cost of$60 and has no fixed costs.a. Assuming perfect competition, computei. Equilibrium price and quantityii. Profits and producer surplusiii. Consumer surplus and total surplusb. Assuming Cournot duopoly, computei. Reaction functions for each firmii. Profits of each firmiii. Consumer surplusiv. Total welfare loss relative to perfect competition (if any)c. Assuming the firms collude and act as a monopolist, computei. Equilibrium price and quantityii. Total profitsiii. Consumer surplusiv. Total welfare loss relative to perfect competition (if any)d. Rank the output quantities, profits, and total welfare by the three marketstructures above
Suppose we have a Hotelling model with N = 150 people who consider the good very valuable at V = $1000 so all consumers will buy from one store or the other, transport costs are t = $25 a mile. We have two competing firms at opposite ends of the road. Firm 2 is located at 0 and firm 2 at 1. Let marginal cost of production be $3. show that: D1= 150(p2 - p1 + $25)/50 Profit1= 3(p1 - 3)(p2 - p1 + 25)
Consider a homogeneous good industry (such as an agricultural product) with just two firms and a total market demand Q = 400−P, so the inverse demand is P = 400 − Q. Suppose both firms have a constant marginal cost equal to $100 per unit of output and a fixed cost equal to $10,000. Suppose that the firms compete by simultaneously setting price, not simultaneously setting output. That is, suppose we consider the Bertrand model instead of the Cournot. Show that the two firms must earn lower profits. Hint: Create a two-by-two game using two different prices for each firm. One price should be the Cournot price (the Cournot is price of the good when firms produce the Cournot output you found above, which is 100 and 100, so the price is P = 400 − 100 − 100 = 200). The second price should be under 200 and over 150. Then show that the Nash equilibrium of this game is the lower of the two prices. When calculating profits, assume that each firm has equal sales (one half of demand) if they charge…