An incumbent firm supplies a consumer by writing a contract in period 1 for delivery in period 2. The contract stipulates a price of $700 and a breach of fee of $500. The consumer values the good at $1000 and the incumbent’s cost equals $400. A potential entrant firm has uniformly distributed costs [0, 800]. If the entrant enters, there is Bertrand price competition. How much additional profit does the incumbent make because of the contract?
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An incumbent firm supplies a consumer by writing a contract in period 1 for delivery in period 2. The contract stipulates a
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- An existing firm offers to supply one unit of a good to a potential buyer by writing a contract in period 1 for delivery in period 2. The contract specifies a price of $210 and a breach of contract fee of $150. The buyer would be willing to pay $330 and the existing firm has a marginal cost of $120. A potential entrant firm has costs uniformly distributed and competes in Bertrand competition with the existing firm if entry occurs. It is known that the entrant’s costs are less than or equal to $240. How much extra profit would the entrant earn if there were no contract in place between the existing firm and the buyer? Select one: a. $22.50 b. none of the other answers c. $31.50 d. $28.50 e. $25.50 Clear my choice Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure.Consider a buyer who, in the upcoming month, will make a decision about whether to purchase a good from a monopoly seller. The seller “advertises” that it offers a high-quality product (and the price that it has set is based on that claim). However, by substituting low-quality components for higher-quality ones, the seller can reduce the quality of the product it sells to the buyer, and in so doing, the seller can lower the variable and fixed costs of making the product. The product quality is not observable to the buyer at the time of purchase, and so the buyer cannot tell, at that point, whether he is getting a high-quality or a low-quality good. Only after he begins to use the product does the buyer learn the quality of the good he has purchased. The payoffs that accrue to the buyer and seller from this encounter are as follows: The buyer’s payoff (consumer surplus) is listed first; the seller’s payoff (profit) is listed second. Answer each of the…The average consumer at a firm with market power has an inverse demand function of P = 10 − Q. The firm's total cost function is C = 2Q. If the firm engages in two-part pricing, what is the optimal price to charge a consumer for each unit purchased? Multiple Choice $2 $0 $1 $4
- The Able Manufacturing Company and Better Bettors, Inc. are rival firms in the production of a calculator used by horse racing fans for handicapping (determining betting strategies). Each firm has a fixed cost of $100 and a MC = $10 in producing calculators. The demand for the industry’s product is: Q = 900 – 5P, where P is the market price and Q = Q1 + Q2. If each firm must choose how many calculators to produce and sell without knowing of its rival’s production decision, what will be the Cournot equilibrium price and quantities produced? Calculate the profit for each firm.You are the manager of a golf course. For simplicity assume that you only have two potential customers – a high demand customer whose inverse demand for golf services is given by P = 10 – 0.5Q and a low demand customer whose inverse demand for golf services is given by P = 8 – 0.5Q. Suppose the marginal cost to the golf course of each round of golf is zero.Suppose you have to charge both players the same two-part pricing strategy. Which of the following pricing strategies will yield the highest profit for you? A. Charge a fixed fee of €100 and a per unit fee of zero B. Charge a fixed fee of €64 and a per unit fee of zero C. Charge a fixed fee of €64 and a per unit fee of €4 D. Charge a fixed fee of €128 and a fixed fee of zero.Consider a simple Bertrand market in which N=3 firms compete by setting prices. As long as they can purchase for less than 20, 10 million consumers select to buy the good from the cheapest firm, and break indifferences at random with equal probabilities if more than one firm set the lowest price. a- The three firms have equal marginal costs c1 =c2 =c3 =5. Derive the demand and payoff function of each firm i as a function of the prices in the market. b- What is the set of non-dominated strategies (or prices) for each firm? c- Derive the Nash Equilibrium of this game. d- How do total consumer surplus, welfare, and profits in the market change relatively to a- above if firm 1 becomes more efficient, and specifically if c1 =2<c2=c3=5 How does total consumer surplus, welfare, and profits in the market change if relatively to d- above, while firm 1 becomes more efficient, firms 2 and 3 experience a cost-increase (e.g. inputs become harder to procure) so that c1 =2<c2 =c3 =7? f- In…
- The point where imperfect competitors will price their products and earn the highest level of total revenues is at the midpoint of the demand curve where total revenues are highest on the total revenue curve. True or FalsePrice competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? (Hint: What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?)Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?
- A firm with market power has an individual consumer demand of Q = 10 − P and total costs of C = 2Q. What is the optimal amount of this product to package in a single block? Multiple Choice 6 2 4 8You have three tickets to a Celtics game on a night that you are going to be out of town (so the value of unsold tickets is zero to you). There are only four possible buyers of a Celtics ticket. The table below lists the respective reservation prices of these four possible buyers: Customer Reservation Price 1 $25 2 $35 3 $50 4 $60 You consider inviting bids using an English auction to sell your tickets. How much total revenue can you generate using the English auction mechanism from the sale of the three tickets? [Bids can be made in increments of $1.00]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 firm