Only for question#2 Monopolistic Competition ProblemConsider the Monopolistic Competition Model studied in class for the following parametervalues:Fixed costs in labor units: F = 2,Marginal cost in labor units: c = 1/2Utility Function Parameter a =1/2 .Notice that in this case the utility function is:001/2u(q1 , 42,ΣI=1(1) Calculate the autarky equilibrium for a country that has 10 agents with 8 units of labor each(i.e., the labor endowment is L=80 and the number of consumers/agents is 10).(2) Free trade between two identical countries (Home and Foreign)Calculate the free trade equilibrium when each country looks like the country in question (1).(3) Show that a consumer (from either ecountry) is happier in free trade than he/she was inautarky (you need to compare the home consumer's utility level in both situations).(4) Growth in the foreign country.Assume now that the foreign country has now 20 agents and therefore labor endowment hasdoubled (i.e. the total labor endowment in foreign is 160). Everything else is unchanged and thetwo countries are trading freely.Show how this change affects the level of happiness of the consumer in the home country (youneed to compare the utility level of the home consumer in free trade before and after the change).

Two or more countries engage in a free trade agreement to reduce import and export barriers amongst…

Monopolistic Competition Problem Consider the Monopolistic Competition Model studied in class for the following parameter values: Fixed costs in labor units: F = 2, Marginal cost in labor units: c = 1/2 Utility Function Parameter a =1/2. Notice that in this case the utility function is: u(q1 ; 92, .) = E I=1 1/2 (1) Calculate the autarky equilibrium for a country that has 10 agents with 8 units of labor each (i.e., the labor endowment is L=80 and the number of consumers/agents is 10). (2) Free trade between two identical countries (Home and Foreign) Calculate the free trade equilibrium when each country looks like the country in question (1).

Monopolistic Competition Problem Consider the Monopolistic Competition Model studied in class for the following parameter values: Fixed costs in labor units: F = 2, Marginal cost in labor units: c = 1/2 Utility Function Parameter a =1/2. Notice that in this case the utility function is: u(q1 ; 92, .) = E I=1 1/2 (1) Calculate the autarky equilibrium for a country that has 10 agents with 8 units of labor each (i.e., the labor endowment is L=80 and the number of consumers/agents is 10). (2) Free trade between two identical countries (Home and Foreign) Calculate the free trade equilibrium when each country looks like the country in question (1).

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 1E

See similar textbooks

Similar questions

You are employed at a monopolistic company as a research (pricing) economist and you are deriving the behavior of two markets based on demand curves given by:D1(p1) = 50 - p1D2(p2) = 50 - 2p2 Assume that the marginal cost is constant at $8 a unit. (a) If it can price discriminate, what price should it charge in each market in order to maximize profits?(b) If it can’t price discriminate, what price should it charge?
The following total cost (TC) relation holds in both short run and long run for a monopolistically competitive firm TC=100+3Q+0.03Q^2 Where Q is the quantity of output TC function includes a risk adjusted normal rate of return on the firm’s investment In the short run, total revenue (TR) relation for this monopolistically competitive firm is given by: TR=11Q-0.01Q^2 Due to a high degree of product differentiation maintained by the firm, the firm demand curve in the long run is a parallel shift of its short-run demand curve. To maximise total profit in the short run, the firm should produce ___________ units of output ; To maximise total profit in the long run, the firm should produce _________ units of output. a.50;100 b. 100;50 c.100;58 d. 50;58
Question 1 You have been appointed the new manager for Ghana Airways Company Limited, an international airline company that flies from the Kotoka International Airport in Accra to Heathrow Airport in London every day. The airline is described as a monopolist and has the possibility of discriminating between its Business and Economy Travelers. To help you price your services appropriately to maximize profit, you engaged an economist who estimated the demand function for both Economy and BusinessTravelers as: Q1 = 24 – 0.2P1 Economy TravelersQ2 = 10 – 0.05P2 Business Travelers Where Q1 and Q2 are the respective numbers of Economy and Business Travelers and P1 and P2 are their respective fares (in GH¢). If the Total Cost (TC) of this airline company for flying these two categories of travelers is given as TC = 35 + 40Q, where Q = Q1 + Q2 (a) What can you say about the fares, number of travelers and profit of Ghana Airways Company Limited, with and without discrimination?
Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is –2. The marginal cost of producing the product is constant at $150, while average total cost at current production levels is $225.Determine your optimal per unit price if:Instructions: Enter your responses rounded to two decimal places.a. You are a monopolist.$ b. You compete against one other firm in a Cournot oligopoly.$ c. You compete against 19 other firms in a Cournot oligopoly.$
A monopolistic producer of two goods, 1 and 2, has a joint total cost function TC=10Q1+Q1Q2+10Q2 where Q1and Q2 denote the quantity of items of goods 1and 2, respectively that are produced. If P1 and P2 denote the corresponding prices then the demand equations are P1=50-Q1+Q2 P2=30+2Q1-Q2 Using the Lagrange multiplier approach, find the maximum profit if the firm is contracted to produce a total of 15 goods of either type. Estimate the new optimal profit if the production quota rises by 1 unit.
For such a monopolistically competitive firm, the following total cost (TC) relation is true both in the short term and the long term. TC=100+3Q+0.03Q^2 where Q is the output's volume. A risk-adjusted normal rate of return on the firm's investment is included in the TC function. For this monopolistically competitive firm, the short-term total revenue (TR) relation is given by: TR=11Q-0.01Q2. The firm's long-run demand curve is a parallel shift of its short-run demand curve because the firm maintains a high level of product differentiation. The firm should create ___ units of output to maximise total profit in the short term; ___ units of output to maximise total profit in the long term. 1 50;1002 100;503 100;584 50;58
Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is -1.5. The marginal cost of producing the product is constant at $125, while average total cost at current production levels is $190.Determine your optimal per unit price if:Instruction: Enter your responses rounded to two decimal places.a. You are a monopolist.$ b. You compete against one other firm in a Cournot oligopoly.$ c. You compete against 19 other firms in a Cournot oligopoly.$
Exercise 6.6. Consider a duopoly in which companies compete according to Cournot's model. The inverse market demand curve is: P(Q)=100-Q , where Q=Q1+Q2 and the average and marginal costs of firms are constant and equal to 40 Calculate profits would each company make? How much would company 1 be willing to invest to reduce its CM from 40 to 25, assuming company 2 does not support it? Graphically show and comment on all results.
Question 9 You have been appointed the new managing director of BOTCHPOWER, which has bought a major stake in Ghana’s ECG and you company is described as a monopolistic competitive firm in the supply of electricity in Ghana. In effect, your firm has the power to discriminate between domestic consumers and commercial consumers of electricity in Ghana. To help you price your services appropriately to maximize profit, you engaged an economist who estimated the demand function for both Domestic consumers and Commercial consumers as: ? = 48 – 0.4? Domestic Consumers -- ? = 20 – 0.1? Commercial Consumers (( Where ?- and ?( are the respective kilowatts (KW) of electricity consumed by Domestic Commercial consumers and ? and ? are their respective prices per kilowatt. If the total cost -( of this BOTCHPOWER company for producing a kilowatt of electricity is given as ?? = 70 + 80?, where ? = ?- + ?(: a) What price will BOTCHPOWER charge per kilowatt to maximize profits: i. With discrimination…
Suppose that two Japanese companies, Hitachi and Toshiba, are the sole producers (i.e., duopolists) of a microprocessor chip used in a number of different brands of personal computers. Assume that total demand for the chips is fixed and that each firm charges the same price for the chips. Each firm’s market share and profits are a function of the magnitude of the promotional campaign used to promote its version of the chip. Also assume that only two strategies are available to each firm: a limited promotional campaign (budget) and an extensive promotional campaign (budget). If the two firms engage in a limited promotional campaign, each firm will earn a quarterly profit of $14 million. If the two firms undertake an extensive promotional campaign, each firm will earn a quarterly profit of $11 million. With this strategy combination, market share and total sales will be the same as for a limited promotional campaign, but promotional costs will be higher and hence profits will be lower.…
As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P = 20 − 0.001Q; on weekdays, it is P = 15 − 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 “royalty” for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once). Devise a pricing strategy to maximize your firm’s profits.
As a manager of a chain of movie theaters that are monopolies in their respective markets, you have noticed much higher demand on weekends than during the week. You therefore conducted a study that has revealed two different demand curves at your movie theaters. On weekends, the inverse demand function is P = 20 – 0.001Q; on weekdays, it is P = 15 – 0.002Q. You acquire legal rights from movie producers to show their films at a cost of $25,000 per movie, plus a $2.50 “royalty” for each moviegoer entering your theaters (the average moviegoer in your market watches a movie only once).