24. If it is possible for the existing firms in an industry to cooperate completely, then we would expect this cooperation to lead to: a) a market price established close to the competitive price. b) the production of a monopoly level of output and the establishment of a monopoly price. c) only a normal profit to be earned by the firms. d) the firms to produce that output level which corresponds to minimum LAC.

24. If it is possible for the existing firms in an industry to cooperate completely, then we would expect this cooperation to lead to: a) a market price established close to the competitive price. b) the production of a monopoly level of output and the establishment of a monopoly price. c) only a normal profit to be earned by the firms. d) the firms to produce that output level which corresponds to minimum LAC.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.4P

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Consider a duopoly market with 2 firms. Aggregate demand in this market is given by Q = 500 – P, where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MCi = 20, i=A,B. Assume the firms compete a la Cournot. 1. What are the equilibrium quantities? 2. What is the total quantity supplied on this market? 3. What is the equilibrium price in this market?
Consider an industry with N firms that compete by setting the quantities of an identical product simultaneously. The resulting market price is given by: p = 1000 − 4Q. The total cost function of each firm is C(qi) = 50 + 20qi . (a) Derive the output reaction of firm i to the belief that its rivals are jointly producing a total output of Q-i . Assuming that every firm produces the same quantity in equilibrium, use your answer to compute that quantity. (b) Suppose firms would enter (exit) this industry if the existing firms were making a profit (loss). Write down a mathematical equation, the solution to which would give you the equilibrium number of firms in this industry. You don’t have to solve this equation.
4. Consider a homogeneous good duopoly with linear demand P(Q) = 12-Q, where Q is the total industry output, and constant marginal costs c=3. a. Suppose that firms simultaneously set quantities. Determine the equilibrium price, quantities, profits, and welfare.b. The firms consider merging although their production costs are not affected. Determine the solution to this problem. Is such a merger profitable? What are the welfare effects of this merger?c. Consider the possibility of firm entry after the merger (the entrant produces at marginal costs c=3 and has entry cost F). Suppose first that the merger is not efficiency-enhancing. Analyze such a market and comment on your result (depending on the entry cost F).
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. (a) At the initial equilibrium, what is total surplus (consumer surplus plus producer surplus)? 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? (c) The output? (d) Total profit? (e) The resulting deadweight loss from River Company operating as a…
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?
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: (c) The output? (d) Total profit?
2. Suppose there are two duopolists that have fixed costs of $ 60, variable costs of $ 10, and have the same demand curves:Q1 = 36 - 2P1 + P2Q2 = 36 - 2P2 + P1P1 and P2 = PQ1 and Q2 = Q Each company chooses its own price and takes the competitor's price as fixed a. Determine the profit equation and the profit valueb. Calculate the reaction curves for firm 1 and firm 2c. Perform the Nash equilibrium determined in the competition model with differentiated products.
Title 1. Two firms have costs of AC 1 = MC 1 = 20 and AC 2 = MC 2 = 16 respectively. Market demand is Q =. Description 1. Two firms have costs of AC1 = MC1 = 20 and AC2 = MC2 = 16 respectively. Market demand is Q = 1000 − 40P. a. Suppose irms practice Bertrand competition, that is, setting prices for their identical products simultaneously. Compute the Nash equilibrium prices. (To avoid technical problems in this question, assume that if irms both have the same price, then the low-cost irm makes all the sales.) b. Compute irm output, irm proit and market output. c. Is total welfare maximised in the Nash equilibrium? If not, suggest an outcome that would maximise total welfare, and compute the deadweight loss in the Nash equilibrium compared with your outcome.
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?
DuopolyMarket for mechanical pencils can be described by the following demand schedule:Price | Number of pencils demanded$6 | 80$5 | 200$4 | 320$3 | 440$2 | 560$1 | 680$0 | 800The fixed cost is $340, while the variable cost is $0.50.d) If there were two firms on the market and they agreed to cooperate, how much would eachfirm need to produce? Follow the procedure outlined in the lecture and show that the otherfirm would prefer to deviate from the agreement.e) When the firms deviate from the agreement, there is a new optimal level of output. Showwhether the firms have an incentive to deviate from that level?f) If there were two firms on the market, what would be the price and the quantity of pencilstraded if the firms couldn’t cooperate?
E1 Find Bertrand equilibrium and its outputs for the following asymmetric duopoly:q 1(p1, p2) = 16 - p1 + 0.5 p2, C1(q1) = 4q1;q 2(p1, p2) = 16 + 0.5 p1 - p2, C2(q2) = 6q2.(Note that the average and marginal costs are: AC1=MC1 = c1 = 4, AC2=MC2 = c2 = 6)