Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Chapter 10, Problem 18SQ
To determine
The
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Consider an industry comprised of three identical firms faced with a linear cost function given by: C(qi) = cqi; for i = 1; 2; 3. Let inverse market demand be given by: P(Q) = a - bQ; where Q = q1 + q2 + q3.a. Compute the Cournot equilibrium; that is, find prices, quantities, and profits.b. Suppose that firms 1 and 2 merge, converting the market into a duopoly consisting of the “superfirm” and firm 3. Compute the new Cournot equilibrium. Once again find prices, quantities, and profits.c. Suppose that all three firms merge. Compute quantities, prices, and profits for the cartel solution.d. Suppose that firm 1 and 2 represent two members of OPEC – Saudi Arabia and Venezuela, say – while firm 3 is a non-OPEC oil exporting country – Russia, say. Describe the dynamics of OPEC. (Hint: re-interpret the solution to part 2, as 1 firm deviating from the fully cartelized solution. Is it convenient to have a partial cartel?)
Answer the given question with a proper explanation and step-by-step solution.
The inverse market demand in a homogeneous-product Cournot duopoly is P = 200 – 2(Q1 + Q2) and costs are C1(Q1) = 26Q1 and C2(Q2) = 32Q2.
Firm 1: Q1 = ? - Q2Firm 2: Q2 = ? - Q1
b. Calculate each firm’s equilibrium output.Firm 1:Firm 2:
c. Calculate the equilibrium market price.$
d. Calculate the profit each firm earns in equilibrium.Firm 1: $Firm 2: $
Consider a two-firm duopoly facing a linear demand curve: P=1,600-Q. Assume MCA=MCB=AC=100
Where: P= Price Q= total output of the market, thus Q=QA+QB
a. find the profit-maximizing output( cournot equilibrium output)
b. find the cournot equilibrium price of firm A and firm B.
3. discuss how agricultural insurance could help farmers improve farm activity.
Chapter 10 Solutions
Micro Economics For Today
Ch. 10.1 - Prob. 1YTECh. 10.5 - Prob. 1GECh. 10.6 - Prob. 1YTECh. 10 - Prob. 1SQPCh. 10 - Prob. 2SQPCh. 10 - Prob. 3SQPCh. 10 - Prob. 4SQPCh. 10 - Prob. 5SQPCh. 10 - Prob. 6SQPCh. 10 - Prob. 7SQP
Ch. 10 - Prob. 8SQPCh. 10 - Prob. 9SQPCh. 10 - Prob. 10SQPCh. 10 - Prob. 11SQPCh. 10 - Prob. 12SQPCh. 10 - Prob. 13SQPCh. 10 - Prob. 1SQCh. 10 - Prob. 2SQCh. 10 - Prob. 3SQCh. 10 - Prob. 4SQCh. 10 - Prob. 5SQCh. 10 - Prob. 6SQCh. 10 - Prob. 7SQCh. 10 - Prob. 8SQCh. 10 - Prob. 9SQCh. 10 - An oligopoly is a market structure in which a. one...Ch. 10 - Prob. 11SQCh. 10 - A common characteristic of oligopolies is a....Ch. 10 - Prob. 13SQCh. 10 - Prob. 14SQCh. 10 - Prob. 15SQCh. 10 - Prob. 16SQCh. 10 - Prob. 17SQCh. 10 - Prob. 18SQCh. 10 - Prob. 19SQCh. 10 - The kinked oligopoly demand curve is a result of...
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- The inverse market demand in a homogeneous-product Cournot duopoly is P = 100 – 2(Q1 + Q2) and costs are C1(Q1) = 20Q1 and C2(Q2) = 30Q2. a. What is the reaction function for each firm? b. What is each firm’s equilibrium output? c. What is the equilibrium market price? d. What is the profit each firm earns in equilibrium?arrow_forwardFirms like Papa John’s, Domino’s, and Pizza Hut sell pizza and other products that aredifferentiated in nature. While numerous pizza chains exist in most locations, thedifferentiated nature of these firms’ products permits them to charge prices abovemarginal cost. Given these observations, is the pizza industry most likely a monopoly,perfectly competitive, monopolistically competitive, or an oligopoly industry? Use thecausal view of structure, conduct, and performance to explain the role of differentiationin the market for pizza. Then apply the feedback critique to the role of differentiation inthe industry.arrow_forwardMany home improvement retailers like Home Depot and Lowes have low-price guarantee policies. At a minimum, these guarantees promise to match a rival’s price, and some promise to beat the lowest advertised price by a given percentage.Do these types of pricing strategies result in cutthroat Bertrand competition and zero economic profits? If not, why not? If so, suggest an alternative pricing strategy that will permit these firms to earn positive economic profits.arrow_forward
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