Consider the model of a vertical market shown in class. Suppose that the supplier sells each unit to the retailer for pw = c, but, in addition, requires the retailer to pay a fixed fraction of the retailer's profits, p. 2 Formulate the retailer's profit-maximization problem under this contract and show that this contract maximizes the total industry profit. That is, show that for any given p, the sum of the supplier's profit and the retailer's profit is equal to the profit made by a vertically integrated monopolist. (Hint: The retailer gets (1 − p) · Ã, rather than л₁. No need to re-do the vertically integrated monopolist's profit. Just take it from the notes.)
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- True/False 1. In a principal-agent relationship between owner and manager with hidden e§ort, the owner can design a wage scheme that insures the optimal Örst best e§ort by the manager regardless of the risk aversion of the manager. Justify your answer. 2. Consider a monopoly that faces an inverse demand curve and has a linear cost function. The monopoly would be indi§erent when maximizing proÖts between either choosing quantities or choosing prices. 3. A multiproduct Örm that as monopoly power over several products sets lower prices than separate Örms (each controlling a single product) when the products are substitutes or when there are economies of scope. 4. In the dominant Örm model (‡ la Hotelling) an increase in the marginal cost of the dominant Örm (with constant marginal costs) implies that proÖts necessarily decrease. 5. Suppose that an industry has 10 Örms where the market shares are ordered from the most to the least dominant Örm f0:5; 0:37; 0:05; 0:03; 0:02; 0:01;…ASAP PLZ You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms’ products are viewed as identical by most consumers. The relevant cost functions are C(Qi) = 2Qi, and the inverse market demand curve for this unique product is given by P = 650 −3 Q. Currently, you and your rival simultaneously (but independently) make production decisions, and the price you fetch for the product depends on the total amount produced by each firm. However, by making an unrecoverable fixed investment of $1,800, Taurus Technologies can bring its product to market before Spyder finalizes production plans. (Assume Taurus Technologies is the leader in this scenario.)What are your profits if you do not make the investment? $ ____What are your profits if you do make the investment?Instructions: Do not include the investment of $1,800 as part of your profit calculation. $ ____ Should you invest the $1,800? multiple choice Yes - the benefits of establishing…We have studied the 2-period alternating offer bargaining model with constant costs of delay. In other words, in that model, there were two agents 1 and 2 , each with a constant delay cost c1 and c2 respectively. That is the cost to each player i of each period of delay is ci . Now consider the 3 -period version of the model. In this model there are 3 periods t = 0, 1, 2 . As before the cost of each additional period of delay is ci to player i, i.e., if the period t = 2 proposal z = (z1, z2) is accepted then player i’s payoff is zi − 2ci and if the period t = 2 proposal is rejected, then it is (−2c1, −2c2). Assume c1 > c2. Find a SPE of the game?
- Two manufacturers, denoted 1 and 2, are competing for 100 identical customers. Each manufacturer chooses both the price and quality of its product, where each variable can take any nonnegative real number. Let pi and xi denote, respectively, the price and quality of manufacturer i’s product. The cost to manufacturer i of producing for one customer is 10 + 5xi. Note in this expression that the cost is higher when the quality is higher. If manufacturer i sells to qi customers, then its total cost is qi(10 + 5xi). Each customer buys from the manufacturer who offers the greatest value, where the value of buying from manufacturer i is 1,000 + xi - pi; higher quality and lower price mean more value. A manufacturer’s payoff is its profit, which equals qi(pi - 10 - 5xi). If one manufacturer offers higher value, then all 100 customers buy from it. If both manufacturers offer the same value, then 50 customers buy from manufacturer 1 and the other 50 from manufacturer 2. Find all symmetric Nash…A contract of employment is defined as an agreement between 2 or more legal persons, in terms of which one of the parties (the employee) undertakes to place his/her personal services at the disposal of the other party (the employer) for an agreed period in return for a fixed or ascertainable wage, and which entitles the employer to define the employee’s duties and to supervise the manner in which the employee discharges them. Describe the essential elements of integrative bargaining.Consider the bargaining problem of splitting a pie of size 1 with utility u(x1) = x1 for player 1 and v(x2) = 2x2 − x22 for player 2, where x1 and x2 denote the share of the pie for player 1 and 2 respectively. a) Consider the bargaining problem of the two players. Find the utility possibility frontier S. b) What is the Nash bargaining solution for this problem (i.e., on which division of the pie (?₁,?₂) will players agree), if the disagreement outcome (the utilities players obtain in case of disagreement) is d1 = d2 = 0? c) What is the Nash bargaining solution if the disagreement outcome is any d1 and d2 in S?
- Suppose that demand for a particular style of handmade Rwandan baskets is Qd = 1700 – 10P. Each basket maker has the following cost function: TCi = 1000 + 50 qi + .1 qi^2. Given this information, find the market outcomes under the various market structures below Multiplant monopoly. Suppose that a local entrepreneur decides to form a single monopoly by acquiring all the firms from part b and operating them as a single company (Each basket maker will still produce using the same cost function, but all the output will be marketed centrally). Now, how much output is produced at each plant (that is, by each basket maker), and how much by the firm as a whole? What is the monopoly price? What is the monopolist’s profit or loss per plant? What is the firm’s overall profit or loss for all 10 plants together? What is MCi and ATCi? What is MR?Youngstown-Warren Regional Airport (YNG) has had a difficult time securing passenger service from a commercial airline. a.) A few years ago, the Port Authority offered an incentive to United with guaranteed revenue equal to approximately $1.5 million, but United declined saying it was not sufficient. Suppose United anticipated that it would cost $1 million to offer flights from Youngstown, so with a guaranteed revenue of $1.5 million, their anticipated profit would equal $500,000. Given that they still chose to decline offering service from YNG, what do you know must be true? Put this in terms of implicit costs and economic profit. b.) In 2019, YNG’s only commercial carrier, Allegiant Air stopped offering service from YNG, despite the fact that it was known to be profitable. Allegiant Air’s service from YNG was known to be profitable. Why would Allegiant Air pull service from YNG even if it had been their service from YNG had been generating a profit? Note, Allegiant started…In Salop’s model of entry deterrence, the unconstrained monopoly earns profits (in present value terms) equal to some amount v0. Suppose v0 = 100. If entry were to occur, the two firms would share the market, each earning v1.(A) Why do we expect 2 v1 to be less than 100 ? (B) The incumbent monopoly can prevent entry by expending a fixed and irreversible amount C that the entrant must match. What conditions on the size of C will both successfully prevent entry, and equally importantly, result in greater profit for the incumbent than by allowing entry?
- 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?Q2.1 In the second round with two buyers remaining, the probability that a buyer with valuation v wins is vN-1, where N is the number of buyers in the first round. Use the revenue equivalence theorem to derive the symmetric equilibrium bidding function b(v) for the buyers in stage two. Show your work. Q2.2 At the end of the auction what is the value of the actual (not expected) revenue that the seller receives? Round your answer to at least three decimal spaces.Consider a rent-seeking game with N ≥ 2 contestants. The effort for person i is denoted by xi for i = 1; ... ; N. The cost per unit of effort is C. All contestants are identical. They value the rent at V and each contestant can win the prize with a probability equal to their effort relative to the total effort of all contestants. Thus the payoff function of person i exerting effort xi is given by Exercise 11.10 Three firms have applied for the franchise to operate the cable TV system during the coming year. The annual cost of operating the system is $250 and the demand curve for its services is P = 500 - Q, where P is the price per subscriber per year and Q is the expected number of subscribers. The franchise is assigned for only one year, and it allows the firm with the franchise to charge whatever price it chooses. The government will choose the applicant that spends the most money lobbying the government members. If the applicants cannot collude, how much will each spend on…