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- Suppose a manufacturer and its retailer face the problem of double marginalization. If the manufacturer sets the wholesale price equal to its marginal cost c and in addition, requires the retailer to pay a fraction α (between 0 and 1) of its profit. 4.a Write down the retailer’s profit maximization problem. Will this practice solve the double marginalization problem? (That is, will this practice maximize their joint profit?) 4.b Suppose the retailer is required to pay a fraction of α of its sales (i.e., total revenue). Write down the retailer’s profit maximization problem. Will this practice solve the double marginalization problem?Two firms, 1 and 2, compete in price Market demand in period t is given by D(t) = AtD(p) with A > 0 The common discount factor is ? ? (0, 1) Suppose the firms use trigger strategies to collude at the monopoly price pm = arg max(p ? c)(A)tD(p) ? (A)t?m (note that pm does not depend on A and t due to the function form) Suppose the punishment after deviation is returning to marginal cost pricing forever If the firms collude, they set the same prices and evenly split the profits What are firms’ collusive profits in period t? If a firm undercuts below pm in period t, what are the (optimal) deviating price and deviating profit Write down the no-deviating condition in period t? Simplify the no-deviating condition and derive the critical discount factor ? Compared to when the market is shrinking (A 1) make collusion easier? Explain in words your finding in [e]Consider any market that has a demand curve given by: Qd = 240 - 2P. Where Qd is the total quantity demanded in the market, given in millions of units and P is the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market with Cmg = CVme = 15 and fixed monthly costs equal to 1,400. About this market, ask yourself: a) What is the profit of each of the oligopolists? b) Imagine that one of the companies managed to implement a process innovation capable of halving its Cmg and CVme, so that they would go from 15 to 7.5. This investment implies an additional monthly expense of $1,800. Discuss the statement: "If this situation occurs, the innovative company will not implement variable cost reduction, as the quantity supplied in the market will increase very little; prices will remain very close to what they are today and its profits will not increase"
- Consider any market that has a demand curve given by: Qd = 240 - 2P. Where Qd is the total quantity demanded in the market, given in millions of units and P is the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market with Cmg = CVme = 15 and fixed monthly costs equal to 1,400. About this market, ask yourself: a) What is the reaction curve of oligopolists? b) What will be the production of each of the companies? c) What is the selling price practiced by oligopolists? d) What is the profit of each of the oligopolists? e) Imagine that one of the companies managed to implement a process innovation capable of halving its Cmg and CVme, so that they would go from 15 to 7.5. This investment implies an additional monthly expense of $1,800. Discuss the statement: "If this situation occurs, the innovative company will not implement variable cost reduction, as the quantity supplied in the market will increase very little; prices will…Two firms engage in Cournot competition in the Everlasting Gobstopper industry. The price elasticity of demand is-2. Firm 1 has aconstant marginal cost of $110.00 per unit, and firm 2 has a constant marginal cost of $181.50 per unit. If the two firms are currently inequilibrium, what is firm 2's share of the market? Enter your answer as a decimal, rounded to two places if necessary.______ Please show all steps(Market Entry Deterrence): NSG is considering entry into the local phone market inthe Bay Area. The incumbent S&P, predicts that a price war will result if NSG enters. If NSG staysout, S&P earns monopoly profits valued at $10 million (net present value, or NPV of profits),while NSG earns zero. If NSG enters, it must incur irreversible entry costs of $2 million. If there isa price war, each firm earns $1 million (NPV). S&P always has the option of accommodatingentry (i.e., not starting a price war). In such a case, both firms earn $4 million (NPV). Supposethat the timing is such that NSG first has to choose whether or not to enter the market. ThenS&P decides whether to “accommodate entry” or “engage in a price war.”a. Model this as a dynamic game and draw the game tree.b. What is the subgame perfect Nash equilibrium outcome to this sequential game?
- Your current prices are $311 in the Southwestern region; $278 in the western-region and $240 in the New England region. Your marginal cost is now $212.21. Given the predicted changes in quantity demanded by region per problem 1 using the stay even analysis %ΔQd = %ΔP/[%ΔP +((P-MC)/P)], can you raise prices by 7% in any of the regional markets? State your conclusion and then show the all the steps supporting your conclusion. (Note you are not being asked to compute the new price. The predicted changes in quantity demanded by region per problem 1 are: 19.32 or 19% percent change in quantity demanded for the Southwestern region Western Region is 0.245 or 24.5 or 25% NE Region is 0.4032 or 40.32 or 40% I don't understand this question and need assistance.Market demand is given by P = 28 - ½ Q. There is a single incumbent firm with constant MC =AC = 5, facing one possible entrant. That entrant must enter with an output no less than 4 units,after which its MC = 6. If the incumbent wants to deter entry, what output should it choose andmaintain?Choose the most appropriate answer. 1.1 Read the following extract and answer question 1.1, 1.2. Evidence of dominationBoth the Competition Commission and Icasa found, in their inquiries, that Vodacom and MTN are dominantacross the supply chain. Their dominance is even more entrenched by the spectrum-sharing deals that they haveentered into with Cell C, Liquid Intelligent Technologies and Rain. Cell C is wholly reliant on MTN and Vodacomto provide mobile services, and Liquid and Rain are disincentivised from competing aggressively in the mobilemarket due to the lucrative deals they have struck to provide capacity to either Vodacom or MTN, or both. Thishas limited their ability to compete independently – leaving Telkom as the only entity in the position to be able tochallenge the “cosy” market structure head-on.Source: https://techcentral.co.za/mcleod-is-wrong-about-telkom/110373/Accessed: 19/08/21 The economic argument being expressed in this extract is that of __________ and has the…
- 5. Consider a single manufacturer (M) and a single retailer (R). Suppose the final demand function is Q=20-4p. M produces at AC=MC=2. The game is played out as below: In stage 1, M decides the wholesale price pw. In stage 2, R decides the retail price pr to consumers. a. Find the values of pr and pw in equilibrium b. Suppose M and R vertically integrate. Find the optimal price for the integrated firmConsider any market that has a demand curve given by: Qd = 125 - 0.4P. Being the total quantity demanded in the market, given the quantity in millions of units and the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market that have Cmg = CVme = 2. About this market, the question is: a) What is the reaction curvature of the oligopolists? b) What will be the production of each of the companies? c) What is the sale price for oligopolists?A nightclub manager realizes that demand for drinks is more elastic among students, and is trying to determine the optimal pricing schedule. Specififically, he estimates the following average demands: • Under 25: qr= 18 − 5p • Over 25: q = 10 − 2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the nightclub $2 each. (a) If the market cannot be segmented, what is the uniform monopoly price? (b) If the nightclub can charge according to whether or not the customer is a student but is limited to linear pricing, what price (per drink) should be set for each group? (c) If the nightclub can set a separate cover charge and price per drink for each group, what two-part pricing schemes should it choose? (d) Now suppose that it is impossible to distinguish between types. If the nightclub lowered drink prices to $2 and still wanted to attract both types of consumers, what cover charge would it set? (e) Suppose that the nightclub again restricts itself…