(Stackelberg model) In a duopoly industry, there are only two firms, firm 1 is the industry leader, while firm 2 is the follower. Firm 1's cost function is: C, = 1.2q{ + 2, firm 2's cost function is: C2 = 1.5g3 + 8. The market demand function is: P = 100 -Y . In a typical Stackelberg model setting, firm 1 makes its production decision first, then firm 2 makes its own decision. a. Given any q1, what is firm 2's best response/rection function? b. Given firm 2's best response function, what is firm 1's best production decision? What is the Stackelberg equilibrium? C.

(Stackelberg model) In a duopoly industry, there are only two firms, firm 1 is the industry leader, while firm 2 is the follower. Firm 1's cost function is: C, = 1.2q{ + 2, firm 2's cost function is: C2 = 1.5g3 + 8. The market demand function is: P = 100 -Y . In a typical Stackelberg model setting, firm 1 makes its production decision first, then firm 2 makes its own decision. a. Given any q1, what is firm 2's best response/rection function? b. Given firm 2's best response function, what is firm 1's best production decision? What is the Stackelberg equilibrium? C.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: Oligopoly

Section: Chapter Questions

Problem 5PA

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Question 1 Assume the market for a product can be described as a Cournot duopoly with two identical firms. The Nash-equilibrium in this market is that the two firms produce the same quantity. Hence, they will have identical market shares, each will have 50%. Assume that firm 1 decides to invest in a technology that reduces its marginal costs. a) What will happen to the two firms market shares? You must explain how you find the answer. b) What will happen to total production and the price of the product? Again, explain your answer.
6 Samsung wants to prevent Whirlpool from entering the market for high-priced, front-load washing machines. Front-load washing machines clean clothes better and use lesser water than conventional top-load machines. Even though front-load machines are more costly to manufacture than top-loaders, Samsung is nonetheless earning economic profit as the only firm making front-loaders for upscale consumers. Plan the appropriate strategic moves that can be applied by Samsung in order to deter Whirlpool from entering the market of front-load washing machines.
8) Assume two firms are currently competing in a market. If one of the two firms wants to try to eliminate the other firm as a competitor, should it undertake a strategy of limit pricing or predatory pricing? Why? In addition, describe the conditions under which the strategy you have selected will be most successful.
11 21. Imagine an N firm oligopoly for "nominally differentiated" goods. That is, each of the N firms produces a product that "looks" different from the products of its competitors, but that "really" isn't any different. However, each firm is able to fool some of the buying public. Specifically, each of the N firms (which are identical and have zero marginal cost of production) has a captive market -consumers who will buy only from that firm. The demand generated by each of these captive markets is given by the demand function Pn A- Xn , where Xn is the amount supplied to this captive market and Pn is the price of the production of firm n. There is also a group of intelligent consumers who realize that the products are really undifferentiated. These…
Q3 The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration Assume that Canada's production of plastic sheds, which we further assume is an oligopoly. Collusive control over the price of plastic sheds in Canada may permit oligopolists in the industry to: Multiple Choice advertise and take advantage of the competitors in the Canadian plastic shed industry. reduce uncertainty, increase profits, and possibly limit entry of new firms in the Canadian plastic shed industry. increase product demand, increase product supply, and lower cost in the Canadian plastic shed industry. achieve economies of scale, reduce costs, and prevent price cheating in the Canadian plastic shed industry. use new technology, achieve economies of scale, and get government subsidies for the Canadian plastic shed industry.
14.6. Product positioning and price competition. Consider a duopoly where horizon- tal product differentiation is important. Firms first simultaneously choose their prod- uct locations, then simultaneously set prices in an infinite series of periods. Suppose that firms collude in prices in the second stage and anticipate they will do so at the product-positioning stage. In this context, what do you expect the degree of product differentiation to be?.
13) The key implications of the Cournot duopoly model are A) Total quantity produced is more than the monopoly situation. B) Price charged by the two firms converges. C) Total quantity produced is less than the monopoly solution. D) A and B. E) A and C.
1. Characteristics of oligopoly An oligopolistic market structure is distinguished by several characteristics, one of which is difficult entry. Which of the following are other characteristics of this market structure? Check all that apply. Market control by many small firms Market control by a few large firms Neither mutual interdependence nor mutual dependence Either similar or identical products Mutual interdependence
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Q1. Which is which? Identify the oligopoly model based on the description. Two Firms, high barriers to Entry, Firms sell identical goods, Firms simultaneously choose output______(a. Cournot Duopoly b. Monopolistic Duopoly c. Bertrand Duopoly d. Stackelberg Duopoly) Two Firms, high barriers to entry, Firms sell identical goods, Firms simultaneously choose prices______(a. Stackelberg Duopoly b. Bertrand Duopoly c. Hotelling Duopoly d. Cournot Duopoly) Few Firms, low barriers to entry, firms sell substitutes but differentiated goods______(a. Monopolistic Competition b. Bertrand Oligopoly c. Bertrand Competition with Differentiated Goods d. Cournot Oligopoly) Two firms, high barriers to entry, firms sequentially choose output______(a. Stackelberg Duopoly b. Bertrand Duopoly c. Cournot Duopoly d. Monopolistic Competition)
1. Characteristics of oligopoly An oligopolistic market structure is distinguished by several characteristics, one of which is either similar or identical products. Which of the following are other characteristics of this market structure? Check all that apply. Market control by many small firms Market control by a few large firms Mutual dependence Mutual interdependence Difficult entry
4. Discuss reasons and conditions under which a monopoly or an oligopoly, despite its market power, might result in a better allocation of the economy's scarce resources than a purely competitive industry.