In a given market good there are only 2 firms that satisfy the demand, and their respective total cost functions are: CTi = 400 and the demand that is estimated is P = 120 - 2Q If the exception variable of both firms is the quantity they will produce, such that the decisions to produce are made sequentially firm number 1 will be the leader who decides the quantity to produce and firm number 2 (follower) decides based on the production of firm number 1, we ask: (a) quantity produced by each firm and its equilibrium price in the market. (b) Profit of each company at equilibrium and (c) Graph your results
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COURSE:
In a given market good there are only 2 firms that satisfy the demand, and their respective total cost functions are: CTi = 400 and the demand that is estimated is P = 120 - 2Q
If the exception variable of both firms is the quantity they will produce, such that the decisions to produce are made sequentially firm number 1 will be the leader who decides the quantity to produce and firm number 2 (follower) decides based on the production of firm number 1, we ask:
(a) quantity produced by each firm and its
(b) Profit of each company at equilibrium and
(c) Graph your results
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- Consider a company that operates in a competitive market, with a typical set of cost curves (Marginal Cost, Average Variable Cost, Average Fixed Cost and Average Cost with typical formats of Microeconomics theory). Consider further that Marginal Costs coincide with Average Total Costs when the firm's output is 200 units of output, at a market price of 50. If market prices fall to 40, the company will produce 180 units of product to maximize its profit. If at this point the Average Fixed Costs per unit of output equals 27 per unit of output, what are your recommendations for this company in the short term? And in the long run?c) Suppose the inverse demand curve in a market is D(p) =a-bp, where D(p) is the quantity demanded and p is the market price. Firm 1 is the leader and has a cost function c1(y1)=cy1 while firm 2 is the follower with a cost function c2(y2 )=. Firm 1 sets its price to maximise its profit. Firm 1 correctly forecasts that the follower takes the price leader’s chosen price as given (price taker) and chooses output so as to maximise its own profit. Write down the profit function of the follower. Calculate the profit maximising quantity that the follower selects given the leader’s chosen price p (i.e., calculate the follower’s supply curve S(p)). Interpret the solution to the profit maximising problem. d) The leader is facing the residual demand curve R(p)=D(p)-S(p) with D(p) and S(p) as defined in (c) Calculate the leader’s residual demand curve using the result in (c). Solve for p as a function of the leader’s output y1, i.e. the inverse…Suppose you have been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. You have assigned your staff member, Troy, to divide a group of survey participants into a treatment group and a control group. The intent is tell Group A that gas prices have increased, and group B will be told that gas prices have not changed. Participant members will then be surveyed about their purchasing habits. When you come back from lunch you notice how Troy has set up the groups: Number of people Number of Men Number of Women Group A 75 2 73 Group B 75 70 5 You tell Troy that...... because the groups are........
- Suppose a typical (representative) corn farm has a short run production technology which results in the outcome of U-shaped Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC). Further, suppose this firm sells its product in a market where the price of the good is determined by the interaction of market Demand and Supply. Because an individual firm is very small compared to the rest of the market, we treat the market price as the price given to the firm, and the individual firm cannot impact that price. assume we are in the Short Run for this firm. In graphing, put $ on the vertical axis and lower-case q (firm output) on the horizontal axis. Start with the AFC0, AVC0, ATC0, and MC0 curves . show shifts in any of the cost curves, reflecting the higher cost of land (keeping in mind that this higher cost is independent of how much or how little corn is actually produced) and labeling the changed cost curves with a subscript 1. On the graph with $ on the…For each of the following scenarios, identify the number of firms present, the type of product, and the appropriate market model. Select the matching entry for each dropdown box in the following table. Scenario Number of Firms Type of Product Market Model A large city has lots of small shops where people can buy sweaters. Each store's sweaters reflect the style of that particular store. Additionally, some stores use higher-quality yarn than others, which is reflected in their price. There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer they can. While pasta manufacturers must pay licensing fees to their local government and undergo regular food-safety inspections, anyone who has passed inspections can acquire and maintain their license. Only three airlines fly from San Francisco to Medford, Oregon. No new airline will enter…A firm has access to two production processes with the following marginal cost curves: MC1 = 0.25x and MC2 = 6+0.1y, where output in production process 1 is x, output in production process 2 is y and hence total output produced is Q = x+y. Show your work to answer the following questions. (i) If it wants to produce 20 units of output, how much should it produce with each process? (ii) If it wants to produce 38 units of output, how much should it produce with each process? (iii) If it wants to produce 108 units of output, how much should it produce with each process?
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- Scenario: In the town of Isoville there are two grocery stores: Alfonso’s Ammenities and Bernice’s Bargains. The grocery stores are located at either end of the town, 1km apart. Recently, the manager of Alfonso’s Ammenities has proposed installing new self-service checkout technology, which promises to reduce the cost of each transaction at the grocery store by reducing staffing costs. The new technology is expected to reduce the marginal cost of selling a typical basket of groceries by $3. However, experience in other locations has shown that in about 25% of installations the self-service technology results in a significant increase in shop-lifting. In these cases, the need to hire extra security staff means that the marginal cost of a typical basket only falls by $1.50. Unfortunately, there is no way to know whether extra security will be required until after the new checkouts are installed.The Market: Isoville has 12,000 households, each of which purchases 1 basket of groceries per…Scenario: In the town of Isoville there are two grocery stores: Alfonso’s Ammenities and Bernice’s Bargains. The grocery stores are located at either end of the town, 1km apart. Recently, the manager of Alfonso’s Ammenities has proposed installing new self-service checkout technology, which promises to reduce the cost of each transaction at the grocery store by reducing staffing costs. The new technology is expected to reduce the marginal cost of selling a typical basket of groceries by $3. However, experience in other locations has shown that in about 25% of installations the self-service technology results in a significant increase in shop-lifting. In these cases, the need to hire extra security staff means that the marginal cost of a typical basket only falls by $1.50. Unfortunately, there is no way to know whether extra security will be required until after the new checkouts are installed.The Market: Isoville has 12,000 households, each of which purchases 1 basket of groceries per…A manufacturer of a new patented product has found that he can sell 70 units a week to the customer if the price is $48. In error, the price was recently advertised at $78 and as a result, only 40 units were sold in a week. The manufacturers fixed costs of production are $1,710 a week and variable costs are $9 per unit. You are required to: a. Show the equation of the demand function linking price (P) to quantity demanded (X) assuming it to be a straight line is P = 118-x
