3 QUESTION 25Consider a Cournot oligopoly with two fimms, where the demand curves are given byP, = 100-Q,- 202P2 = 100- 20, - Q2and that costa are given by TC(Q,) = Q, . MC, = 2Q1. TC(Q2) = Q?2, and MC2 = 2Q2.Also, marginal revenues can be written as MR, = 100-2Q,- 20,. MR, = 100-20, -2Q,.Now, suppose that a marketing company approaches firm 1 and tells them that they can help them differentiate their product, so that inatead of firm 2 affecting their demand curve in the manner described by the equation in P1 above, they guarantee that firm 1's demand equation after marketing will be of the formP, = 100-Q1- BQ2.where B is estimated to lie somewhere between 0 and 1. In this case, firm 1's marginal revenue function would beMR, = 100 - 2Q1-BQ2Without any further information, and knowing only that B will fall somewhere between O and 1, what is the maximum amount firm 1 should be prepared to pay for these marketing servicee? (There is an exact answer to this question, which I hope for you to arrive at. But in order to avoid decimal/rounding eror, pleasechocse the range within which the correct anawer falla).O Between $850-700.O Between $350-400.O Between $250-300.O Between $1000-1500.

Introduction We have given Cournot oligopoly demand functions of two firms. Marginal revenue of…

Consider a Cournot oligopoly with two firma, where the demand curves are given by P, = 100-Q,-20, P2= 100-20, -Q2 and that coste are given by TC(Q,) = Q, . MC, = 2Q1. TC(Q2) = Q, and MC2 = 20, Also, marginal revenues can be written as MR, = 100- 2Q,-202. MR2 = 100-20,-202 Now, suppose that a marketing company approaches firm 1 and tells them that they can help them differentiate their product, so that inatead of firm 2 affecting their demand curve in the manner desoribed by the equation in P, above, they guarantee that firm 1's demand equation after marketing will be of the form P, = 100-Q-pQ where B is ostimated to lie somewhere between O and 1. In this case, firm 1's marginal revenue function would be MR, - 100- 2Q,-B0 Without any further information, and knowing only that B will fall somewhere between O and 1, what is the maximum amount firm 1 should be prepared to pay for these marketing services? (There is an exact anawer to this question, which I hope for you to arrive at. But in order to avoid decimal/rounding error, please choose the range within which the correct answer falle). O Between S050-700. O Between $350-400. O Between $250-300. O Between $1000-1500.

Consider a Cournot oligopoly with two firma, where the demand curves are given by P, = 100-Q,-20, P2= 100-20, -Q2 and that coste are given by TC(Q,) = Q, . MC, = 2Q1. TC(Q2) = Q, and MC2 = 20, Also, marginal revenues can be written as MR, = 100- 2Q,-202. MR2 = 100-20,-202 Now, suppose that a marketing company approaches firm 1 and tells them that they can help them differentiate their product, so that inatead of firm 2 affecting their demand curve in the manner desoribed by the equation in P, above, they guarantee that firm 1's demand equation after marketing will be of the form P, = 100-Q-pQ where B is ostimated to lie somewhere between O and 1. In this case, firm 1's marginal revenue function would be MR, - 100- 2Q,-B0 Without any further information, and knowing only that B will fall somewhere between O and 1, what is the maximum amount firm 1 should be prepared to pay for these marketing services? (There is an exact anawer to this question, which I hope for you to arrive at. But in order to avoid decimal/rounding error, please choose the range within which the correct answer falle). O Between S050-700. O Between $350-400. O Between $250-300. O Between $1000-1500.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.6P

See similar textbooks

Similar questions

Suppose three Cournot competitors, each with costs Ci = 30qi, face an inverse market demand curve of P = 480 – 4Q. Suppose merging will not change costs. a. Find profits for the three firms. Note: Don’t round your answers. How will the profits change for F1 and for F2|3 if F2 and F3 merge? b. Suppose that after the merger occurs, F1 and the new firm F2|3 successfully collude at setting the monopoly price and output, and splitting the resulting monopoly profits. How, if at all, does this change the impact of the merger on F1 and on the merged firm?
Two firms are engaged in Cournot (simultaneous quantity) competition. Market-level inverse demand is given by P = 160 − 4Q Firm 1 has constant marginal costs of MC1 = 8, while Firm 2 has constant marginal costs of MC2 = 24. 1) Does there exist a low enough positive marginal cost for firm 1 such that firm 1 acts like a monopoly in this market, if so what is the MC if not why?
H7. For q1=120-2p1-p2 and q2=120-2p2+p1, show that the duopolists have incentives to collude as well as find the -joint profit-maximizing price, output and profit and find each firm’s price, output and profit. What is the optimal defection of each firm, is collusion Nash equilibrium? Show in 2x2 matrix. Is it a prisoner’s dilemma?
Part d please Suppose four Cournot competitors face an inverse market demand curve of P = 1620 – 8Q, each with identical costs Ci = 4000 + 60qi. Use the formulae given in exercise 8.15 (pgs. 214-15) for firm profits, market price, and consumer surplus at a Cournot equilibrium to answer the following questions. a. Demonstrate that a merger between F3 and F4 will not be profitable if their costs remain unchanged. (Careful: the “n” in the profit formula changes from 4 to 3.) b. Could the merger be profitable i. if fixed costs fell? If so, how much reduction is necessary? ii. If the variable costs of the merged firm fell by 75%, so that C3|4 = 8000 + 15q? (Fixed cost remains 8000 because we are assuming only variable costs fall.) c. Calculate the consumer surplus created in this market when there are four identical firms. How does it change after a merger occurs between F3 and F4 if: i. no costs savings occur ii. the merged firm reduces its fixed costs by $6000 iii. the merged firm…
N6 As the number of firms In an cligopoly becomes very lange, the price gets close to the perfiect competition price True False
Consider a quantity-setting duopoly. The two firms are Alpha, Ltd. and Beta, Inc. The demand schedulein this market is: p Qd180 150155 175130 200Each firm has a constant marginal cost of 30 per unit. Suppose each firm can choose to produce either 75units or 100 units. Firms make their quantity choices simultaneously and the market price is whatever itneeds to be to sell the total output in the market.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs. Show your workdetermining the profits in each box in the matrix.(b) Determine the Nash equilibrium of this game.(c) Suppose the firms were able to come to an agreement to make more profit. What would this agreementbe?(d) Explain how the government might respond to such an agreement and why.
Consider a quantity-setting duopoly. The two firms are Alpha, Ltd. and Beta, Inc. The demand schedulein this market is:p Qd180 150155 175130 200Each firm has a constant marginal cost of 30 per unit. Suppose each firm can choose to produce either 75units or 100 units. Firms make their quantity choices simultaneously and the market price is whatever itneeds to be to sell the total output in the market.(a) Draw up the normal form game matrix, showing the players, strategies, and payoffs. Show your workdetermining the profits in each box in the matrix.(b) Determine the Nash equilibrium of this game.(c) Suppose the firms were able to come to an agreement to make more profit. What would this agreementbe?(d) Explain how the government might respond to such an agreement and why
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?
9.17. Number of competitors. Consider an n firm homogeneous-good oligopoly with constant marginal cost, the same for all firms. Let d ̄ be the minimum value of the dis- count factor such that it is possible to sustain monopoly prices in a collusive agreement. Show that d ̄ is decreasing in n. Interpret the result.
Suppose oil production in the Gulf of Mexico was a symmetric horizontal oligopoly in Cournot competition. Assume there are two producers, each with a constant marginal cost of production of $50 per barrel. Let the demand function for oil in the region be D(p) = 12000 – 20p, where demand is measured in barrels per day. (You will need to calculate inverse demand from demand before moving on). What would the perfectly competitive equilibrium price and quantity be? What would be the consumer surplus and producer surplus? Draw each firm’s residual inverse demand curve. Calculate the Cournot-Nash equilibrium price and quantity. What is the total consumer surplus, total producer surplus across the two firms, and deadweight loss?
Part b please Suppose four Cournot competitors face an inverse market demand curve of P = 1620 – 8Q, each with identical costs Ci = 4000 + 60qi. Use the formulae given in exercise 8.15 (pgs. 214-15) for firm profits, market price, and consumer surplus at a Cournot equilibrium to answer the following questions. a. Demonstrate that a merger between F3 and F4 will not be profitable if their costs remain unchanged. (Careful: the “n” in the profit formula changes from 4 to 3.) b. Could the merger be profitable i. if fixed costs fell? If so, how much reduction is necessary? ii. If the variable costs of the merged firm fell by 75%, so that C3|4 = 8000 + 15q? (Fixed cost remains 8000 because we are assuming only variable costs fall.) c. Calculate the consumer surplus created in this market when there are four identical firms. How does it change after a merger occurs between F3 and F4 if: i. no costs savings occur ii. the merged firm reduces its fixed costs by $6000 iii. the merged firm…
Part c please Suppose four Cournot competitors face an inverse market demand curve of P = 1620 – 8Q, each with identical costs Ci = 4000 + 60qi. Use the formulae given in exercise 8.15 (pgs. 214-15) for firm profits, market price, and consumer surplus at a Cournot equilibrium to answer the following questions. a. Demonstrate that a merger between F3 and F4 will not be profitable if their costs remain unchanged. (Careful: the “n” in the profit formula changes from 4 to 3.) b. Could the merger be profitable i. if fixed costs fell? If so, how much reduction is necessary? ii. If the variable costs of the merged firm fell by 75%, so that C3|4 = 8000 + 15q? (Fixed cost remains 8000 because we are assuming only variable costs fall.) c. Calculate the consumer surplus created in this market when there are four identical firms. How does it change after a merger occurs between F3 and F4 if: i. no costs savings occur ii. the merged firm reduces its fixed costs by $6000 iii. the merged firm…