Suppose an industry has three identical firms competing on quantities with demand P = 100 ― (2)Q and constant marginal costs of MC = 1. What are the firms’ best response functions? What could lead the firms to have asymmetric best response functions? What is the simplest assumption that could change?

Suppose an industry has three identical firms competing on quantities with demand P = 100 ― (2)Q and constant marginal costs of MC = 1. What are the firms’ best response functions? What could lead the firms to have asymmetric best response functions? What is the simplest assumption that could change?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter15: Oligopoly And Strategic Behavior

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

Consider a Cournot duopoly with a demand function of p=10-Q(where Q=q1+q2) and a constant marginal cost of c>0. a) Find the two firms’ best-response functions. b) Find the Nash equilibrium output. c) What happens to the equilibrium market price as c increases (assuming that c remains below 10)? d) What happens to the equilibrium market price if c increases above 10?
Suppose an industry has three identical firms competing on quantities with demand P = 100 ― (2)Q and constant marginal costs of MC = 1. What are the firms’ best response functions?
Two firms A and B compete in a Cournot duopoly environment. The (inverse) market demand curve is given as P = 88 – 0.5Q, where Q = QA + QB. The total cost for the two firms are given by TCA = 8QA and TCB = 8QB. The reaction (best response) function for firm A is given by
Two firms compete in a market to sell a standardized product and the inverse demand in the market is P = 400 – Q where Q = Q1 + Q2. The cost functions are: C1(Q1) = 8Q1 and C2(Q2) = 36Q2. If this market is characterized by a Stackelberg oligopoly, what is the optimal amount for the follower (firm 2) to produce?
In the initial Cournot oligopoly equilibrium, both firms have constant marginal costs, m, and nofixed costs, and there is a barrier to entry. Determine what happens to the best-response functionof firms if both firms now face a fixed cost of F
Three firms produce identical products and compete in a market where the inverse demand function is P(q1, q2, q3) = 78 − q1− q2− q3. Each has a per-unit cost of 14 and zero fixed cost. They simultaneously choose quantities. In scenario (a), find the Nash equilibrium of this game and let A = firm 2's profit in the Nash equilibrium. In scenario (b), assume that the firms form a cartel, i.e., they act as a monopoly and split the profit evenly. If the total quantity produced by the cartel is Q, then the inverse demand is P(Q) = 78 - Q. Let B = firm 2's profit in the cartel. Calculate the value of A - B and enter your answer in the box below. Please round your answer to 3 decimal places (e.g., write 4/3 as 1.333).
Supposed to demand for a product is P=150 - Q and that the marginal cost of producing the product is $50. If two firms compete in a Cournot oligopoly in this market what is the best response function for firm one?
Two firms compete in a market to sell a standardized product and the inverse demand in the market is P = 400 – Q where Q = Q1 + Q2. The cost functions are: C1(Q1) = 8Q1 and C2(Q2) = 36Q2. If this market is characterized by a Stackelberg oligopoly, what is the optimal amount for the leader (firm 1) to produce?
Consider a market dominated by two firms with identical cost functions C(q) = c*q for some constant “c”, both facing inverse demand function P(Q) = a – b*Q. Firms are in Bertrand competition by simultaneously setting prices (i.e., static, one-shot, simultaneous move game). If prices offers are equal, the two firms split the market. Suppose firms can pick only one of two prices: a high price or a low price. Construct an example with a 2 X 2 Normal Form payoff matrix using the profit functions of each firm as payoffs, and show that the low price is the Nash equilibrium. Now suppose firms can pick any price. Construct an argument to show that any pair of prices offered by the firms in which p>c is NOT a Nash equilibrium. Suppose again that firms can pick only one of two prices: high or low, but now suppose they have committed to a price-match guarantee. Construct another 2 X 2 Normal Form payoff matrix using the profit functions of each firm, and show whether high or low price (or…
Consider a Cournot Oligopoly. One firm has costs C1(Q1) = 12Q1 while the other firm’s cost function is C2(Q2) = 10Q2. The demand for both firms’ products Q=Q1 +Q2 isQD(P)=200−2P. (a) Determine the equilibrium price P, the market shares s1, s2, and the quantities Q1, Q2 produced by both firms. (b) Suppose more firms with the lower cost technology, i.e., with cost function Ci(Qi) = 10Qi enter the market. How many firms with this technology must be in the market such that firm 1’s profit becomes negative. In other words, suppose there is one firm with the high costs, and n firms with the low costs. At what level n will profits of the high-cost firm be negative?
OLIGOPOLY 1.- Each of two firms, firms 1 and 2, has a cost function C(q) = 30q; the inverse demand function for the firms' output is p = 120-Q, where Q is the total output. Firms simultaneously choose their output and the market price is that at which demand exactly absorbs the total output (Cournot model).(a) Obtain the reaction function of a firm.(b) Map the function obtained in (a), and graphically represent the Cournot equilibrium in this market.(c) Repeat (b), this time analytically.(d) Now suppose that firm 1's cost function is C(q) = 45q instead, but firm 2's cost is unchanged. Analyze the new solution in the market.(e) Obtain the total surplus, consumer surplus, and industry profits in both cases, and compare. What is the effect of the worsening in firm 1's cost?
Consider two firms that compete according to the Cournot model. Inverse demand is P (Q) = 16 − Q. Their cost functions are C (q1) = 2q1 and C (q2) = 6q2 (a) Solve for Nash equilibrium quantities of each firm (b) Suppose firm 2 becomes more inefficient and its cost function changes to C (q2) = xq2 where x > 6. How large must x be to cause firm 2 to not want to produce anything in equilibrium?