calculate the Reaction functions 1) There are usually only two tirms in the rural markets serving millions of potential customers2) The firms produce essentially homogeneous products3) Each firm essentially has fixed capacity or output4) Barriers to entry for other firms are very highMr. Zuliani anticipates that prices will be lower given this change but needs your help determining what theequilibrium price is and what the expected profits (not including fixed costs) will be for the company.wwwZuliani Telecom analysts have estimated the yearly inverse market demand to be (quantities are in 000's):P = 140 - 0.02(Q1 + Q2)The estimated yearly costs for Zzuliani Telecom to be:C1(Q1) = 26Q1They estimated yearly costs for whoever their sole competitor (one of Telus, Bell, and Rogers) to be:C2(Q2) = 20Q2Mr. Zuliani would love to be able to present to the board of directors the expected equilibrium price andexpected yearly profits at the next board meeting coming up next week. The Situation:Patrick Zuliani is the founder and CEO of Zuliani Telecom, a publicly traded cell phone service provider that isabout to start offering service in remote areas across Canada (see grey area in figure 1) following the approval ofwwwtheir application to the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC waswilling to fast-track the approval for Zuliani Telecom to enter these markets as there is often only one providerof wireless mobile in these areas and rural Candians have been complaining about high prices and poorcustomer service. The CRTC has not yet granted them access to any of the densely populated urban areas ofCanada (see yellow area figure 1).Canada's current mobile wireless industry can best be described as an oligopoly where Rogers, Telus, and Bellhave over a 90% market share. This means that the market can be potentially very lucrative if Zuliani telecomcan strategically secure a foothold in the rural market and create a strong business case to present to the CRTCso that they gain access to the urban market.The shareholders and the board of directors for Zuliani Telecom are getting very impatient with the currentshare price of the company and the large capital investments that have been made to enter the Canadianwireless mobile market. The pressure is on Mr. Zuliani to present a strategic plan that will impress the board andshow the company's long-term profit outlook justifies the recent investments.Mr. Zuliani's friend, Nathan Price, has recommended you based on your outstanding work helping NorthernCottage Living. Therefore, Zuliani Telecom has made you a lucrative offer to consult them during this importanttime.Pricing Strategy and Profit Prediction:Zuliani Telecom will only be offering a single monthly plan (unlimited talk, text, and data) and is still unsure ofwhat price they will end up offering for this wireless mobile service. Since Zuliani will essentially only becompeting with one existing company in most rural markets there will be an expected transition from theexisting monopolies to Cournot duopolies since:

Question

calculate the Reaction functions 1) There are usually only two tirms in the rural markets serving millions of potential customers2) The firms produce essentially homogeneous products3) Each firm essentially has fixed capacity or output4) Barriers to entry for other firms are very highMr. Zuliani anticipates that prices will be lower given this change but needs your help determining what theequilibrium price is and what the expected profits (not including fixed costs) will be for the company.wwwZuliani Telecom analysts have estimated the yearly inverse market demand to be (quantities are in 000's):P = 140 - 0.02(Q1 + Q2)The estimated yearly costs for Zzuliani Telecom to be:C1(Q1) = 26Q1They estimated yearly costs for whoever their sole competitor (one of Telus, Bell, and Rogers) to be:C2(Q2) = 20Q2Mr. Zuliani would love to be able to present to the board of directors the expected equilibrium price andexpected yearly profits at the next board meeting coming up next week. The Situation:Patrick Zuliani is the founder and CEO of Zuliani Telecom, a publicly traded cell phone service provider that isabout to start offering service in remote areas across Canada (see grey area in figure 1) following the approval ofwwwtheir application to the Canadian Radio-television and Telecommunications Commission (CRTC). The CRTC waswilling to fast-track the approval for Zuliani Telecom to enter these markets as there is often only one providerof wireless mobile in these areas and rural Candians have been complaining about high prices and poorcustomer service. The CRTC has not yet granted them access to any of the densely populated urban areas ofCanada (see yellow area figure 1).Canada's current mobile wireless industry can best be described as an oligopoly where Rogers, Telus, and Bellhave over a 90% market share. This means that the market can be potentially very lucrative if Zuliani telecomcan strategically secure a foothold in the rural market and create a strong business case to present to the CRTCso that they gain access to the urban market.The shareholders and the board of directors for Zuliani Telecom are getting very impatient with the currentshare price of the company and the large capital investments that have been made to enter the Canadianwireless mobile market. The pressure is on Mr. Zuliani to present a strategic plan that will impress the board andshow the company's long-term profit outlook justifies the recent investments.Mr. Zuliani's friend, Nathan Price, has recommended you based on your outstanding work helping NorthernCottage Living. Therefore, Zuliani Telecom has made you a lucrative offer to consult them during this importanttime.Pricing Strategy and Profit Prediction:Zuliani Telecom will only be offering a single monthly plan (unlimited talk, text, and data) and is still unsure ofwhat price they will end up offering for this wireless mobile service. Since Zuliani will essentially only becompeting with one existing company in most rural markets there will be an expected transition from theexisting monopolies to Cournot duopolies since:

Accepted Answer

An oligopoly is a market structure where a small number of firm dominates the market. A duopoly is…