Two firms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both firms sell an identical product for which each of 100 consumers has a maximum willingness to pay of $40. Each consumer will buy at most 1 unit, and will buy it from whichever firm charges the lowest price. If both firms set the same price, they share the market equally. Costs are given by a (g) = 16g. Because of government regulation, firms can only choose prices which are integer numbers, and they cannot price above $40. Answer the following: a) If Firm 1 chooses pn = 27. Firm 2's best response is to set what price? b) If Firm 2 chooses the price determined in the previous question. Firm 1's best response is to choose what price? ) If Firm 1 chooses pi = 5, Firm 2's best response is a range of prices. What is the lowest price in this range? d) Now suppose both firms are capacity-constrained: Firm 1 can produce at most 17 units, and Firm 2 can produce at most 44 units. If firms set different prices, consumers will first buy from the firm charging the lower price. Once that firm's supply is exhausted, consumers will buy from the firm charging the higher price until that firm's supply is exhausted. What is Firm 1's equilibrium profit?

Two firms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both firms sell an identical product for which each of 100 consumers has a maximum willingness to pay of $40. Each consumer will buy at most 1 unit, and will buy it from whichever firm charges the lowest price. If both firms set the same price, they share the market equally. Costs are given by a (g) = 16g. Because of government regulation, firms can only choose prices which are integer numbers, and they cannot price above $40. Answer the following: a) If Firm 1 chooses pn = 27. Firm 2's best response is to set what price? b) If Firm 2 chooses the price determined in the previous question. Firm 1's best response is to choose what price? ) If Firm 1 chooses pi = 5, Firm 2's best response is a range of prices. What is the lowest price in this range? d) Now suppose both firms are capacity-constrained: Firm 1 can produce at most 17 units, and Firm 2 can produce at most 44 units. If firms set different prices, consumers will first buy from the firm charging the lower price. Once that firm's supply is exhausted, consumers will buy from the firm charging the higher price until that firm's supply is exhausted. What is Firm 1's equilibrium profit?

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 2E

See similar textbooks

Similar questions

Two firms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both firms sell an identical product for which each of 100 consumers has a maximum willingness to pay of $40. Each consumer will buy at most 1 unit, and will buy it from whichever firm charges the lowest price. If both firms set the same price, they share the market equally. Costs are given by c; (q) = 16q;. Because of government regulation, firms can only choose prices which are integer numbers, and they cannot price above $40. Answer the following: a) If Firm 1 chooses pi = 32, Firm 2's best response is to set what price? b) If Firm 2 chooses the price determined in the previous question, Firm 1's best response is to choose what price? c) If Firm 1 chooses pi = 9, Firm 2's best response is a range of prices. What is the lowest price in this range? d) Now suppose both firms are capacity-constrained: Firm 1 can produce at most 42 units, and Firm 2 can produce at most 44 units. If firms set different prices,…
Two firms, Firm 1 and Firm 2, compete by simultaneously choosing prices. Both firms sell an identical product for which each of 100 consumers has a maximum willingness to pay of $40. Each consumer will buy at most 1 unit, and will buy it from whichever firm charges the lowest price. If both firms set the same price, they share the market equally. Costs are given by C; (qi) = 16q¡ . Because of government regulation, firms can only choose prices which are integer numbers, and they cannot price above $40. Could you help me with these questions? a) If Firm 1 chooses Pi price? = 32, Firm 2's best response is to set what b) If Firm 2 chooses the price determined in the previous question, Firm 1's best response is to choose what price? c) If Firm 1 chooses p₁ = 9, Firm 2's best response is a range of prices. What is the lowest price in this range?
The Able Manufacturing Company and Better Bettors, Inc. are rival firms in the production of a calculator used by horse racing fans for handicapping (determining betting strategies). Each firm has a fixed cost of $100 and a MC = $10 in producing calculators. The demand for the industry’s product is: Q = 900 – 5P, where P is the market price and Q = Q1 + Q2. If each firm must choose how many calculators to produce and sell without knowing of its rival’s production decision, what will be the Cournot equilibrium price and quantities produced? Calculate the profit for each firm.
Two firms - firm 1 and firm 2 - share a market for a specific product. Both have zero marginal cost. They compete in the manner of Bertrand and the market demand for the product is given by: q = 20 − min{p1, p2}. 1. What are the equilibrium prices and profits? 2. Suppose the two firms have signed a collusion contract, that is, they agree to set the same price and share the market equally. What is the price they would set and what would be their profits? For the following parts, suppose the Bertrand game is played for infinitely many times with discount factor for both firms δ ∈ [0, 1). 3. Let both players adopt the following strategy: start with collusion; maintain the collusive price as long as no one has ever deviated before; otherwise set the Bertrand price. What is the minimum value of δ for which this is a SPNE. 4. Suppose the policy maker has imposed a price floor p = 4, that is, neither firm is allowed to set a price below $4. How does your answer to part 3 change? Is it now…
Two firms produce a homogeneous good and compete in price. Prices can only take integer values. The demand curve is Q = 6 p, where p denotes the lower of the two prices. The lower - priced firm meets all the market demand. If the two firms post the same price p, each one gets half the market demand at that price, i. e., each gets (6p)/2. Production cost is zero.a) Show that the best response to your rival posting a price of 6 is to post the monopoly price of 3. What is the best response against a rival's price of 4? of 5?
Given that If Alfonso's marginal cost is $6, their best-response function is, Pa=(Pb+30)/2 and If Bernice’s marginal cost is $12, their best-response function is, Pb=(Pa+36)/2, Find the equilibrium prices for the case in which Alfonso's marginal cost is $6 and Bernice's marginal cost is $12.
Two firms compete in a homogeneous product market where the inverse demand function is P = 20 − 5Q (quantity is measured in millions). Firm 1 has been in business for one year, while firm 2 just recently entered the market. Each firm has a legal obligation to pay one year’s rent of $2 million regardless of its production decision. Firm 1’s marginal cost is $2 and firm 2’s marginal cost is $10. The current market price is $15 and was set optimally last year when firm 1 was the only firm in the market. At present, each firm has a 50 percent share of the market. a. Why do you think firm 1’s marginal cost is lower than firm 2’s marginal cost? b. Determine the current profits of the two firms. c. What would happen to each firm’s current profits if firm 1 reduced its price to $10 while firm 2 continued to charge $15? d. Suppose that, by cutting its price to $10, firm 1 is able to drive firm 2 completely out of the market. After firm 2 exits the market, does firm 1 have an incentive to raise…
Two firms compete in prices in a market for a homogeneous product. In this market there are N > 0 consumers; each buys one unit if the price of the product does not exceed $10, and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume that N/2 consumers buy from each firm. Assume zero production cost for both firms. Suppose that the firms set prices simultaneously in a game that is repeated infinitely. Let denote the time- discount parameter. Propose trigger price strategies for both firms yielding the collusive prices of ($10, $10) each period. Calculate the minimal value of that would enforce the trigger price strategies you proposed.
The marginal cost of a product is fixed at MC = 20. The demand for the product is Q = 100 - 2P. (a) Now consider a Cournot model with two firms that are choosing quantities simultaneously. What is the best reply (best response) function for each firm? What is theNash equilibrium? What is the total surplus? (b)What do you expect the total surplus would be with three firms? Why? (You do not need to calculate an exact value. You can say ”total surplus is at least 100”, or ”total surplus is at most 80”)
Two firms simultaneously decide whether or not to enter a market, and if yes, when to enter a market. The market lasts for 5 periods: starting in period 1 and ending in period 5. A firm that chooses to enter can enter in any of the five periods. Once a firm enters the market in any period it has to stay in the market through period 5. In any period tt that the the firm is not in the market, it earns a zero profit. In any period tt, if a firm is a monopolist in the market, it makes the profit 10t−24. In any period tt if a firm is a duopolist in the market it makes a profit of 7t−24. A firm's payoff is the total profit it earns in all the periods it is in the market. How many strategies does each firm have? Firm 1's best response to Firm 2's choice Do not enter is to enter in period: In a Nash equilibrium, Firm 1 enters in period _______ (if there is more than one answer, write any one)
Consider a remote town in which two restaurants, All-You-Can-Eat Café and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $13,000; alternatively, if they both hire workers to clean, each will earn only $10,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaurant will make only $6,000. Complete the following payoff matrix using the information just given. (Note: All-You-Can-Eat Café and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up All-You-Can-Eat Café Cleans Up , ,…
The total cost for a product-testing firm is C(q)=70 + 20q2 q= number of products tested Price of a product = average cost Each corporation purchases one product test per year from a product-testing firm in the same city. All other inputs are ubiquitous. Suppose five corporations are initially distributed uniformly, with one corporation in each city (A,B,C,D,E). Is the initial distribution a Nash Equilibrium? Demonstrate it is not by finding how much one corporation would pay if they deviate and move to another city? What is the average price of having two tests conducted? (Which is the price that the corporation would pay if they "live" in a city where two tests are conducted) The average price of moving and thus, having two tests is: $_____