Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
14th Edition
ISBN: 9781337198196
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 3E
a)
To determine
To calculate: The optimum output and the selling
b)
To determine
To calculate: The total profits for each firm and total industry at optimal solution
c)
To determine
To find: Marginal cost of the two firms are equal at the optimal solution
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Consider two price-setting oligopolies supplying consumers in a certain region of a
country. Firm 1 employs many of the people living there and the local government subsidizes
its operations. In all other respects, the firms are identical-they have the same constant
marginal cost, MC = 4, and produce the same good. The demand function for Firm 1 is q1 =
600 - 50p1 - 20p2 and for Firm 2 is q2 = 600 - 50p2 - 20p1, where p1 is Firm 1's price and p2 is
Firm 2's price.
a. What are the Nash-Bertrand equilibrium prices and quantities without the subsidy?
b. What are they if Firm 1 receives a per-unit subsidy of S = 1? Compare the two equilibria.
Consider a hypothetical demand schedule for monosodium glutamate (MSG). Suppose that Ajinomoto holds 50% of the market, Jiali holds 30% of the market, and Quingdao holds 20% of the market.
Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms.
Price of MSG ($ per pound)
Quantity of MSG demanded (millions of pounds)
$8
0
$7
20
$6
30
$5
40
$4
60
$3
90
$2
110
$1
180
$0
300
What quantity maximizes the cartel's profit?
a.110 million pounds
b.90 million pounds
c.300 million pounds
d.20 million pounds
Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero.
How would this affect the incentive of Ajinimoto to act noncooperatively and change its output?
a.Ajinomoto will have an incentive to increase its output of MSG.
b.Ajinomoto will not have an incentive to change its…
Please
Chapter 12 Solutions
Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
Knowledge Booster
Similar questions
- Pleasearrow_forwardMarket demand for widgets is p = 160 - 2Q. Whether there is just one firm selling widgets or many firms selling widgets, the marginal cost and average cost is 100.Assume there are two firms selling widgets acting as Stackelberg duopolists, with Firm 1 moving first and Firm 2 following. Further assume that Firm 1's marginal profit function at its maximum is Mπ(q1) = 75 - q1, where q1 is the amount of widgets sold by Firm 1. What is the quantity sold for each firm?Options are:Firm 1 sells 0 Firms 2 sells 80Firm 1 sells 25 firm 2 sells 64.5Firm 1 sells 15, Firm 2 sells 30Firm 1 sells 7.5 Firm 2 sells 15From question 12 (Stackelberg duopolists), what is the price of widgets?Options are:1501158565arrow_forwardBreakdown of a cartel agreement Consider a town in which only two residents, Darnell and Eleanor, own wells that produce water safe for drinking. Darnell and Eleanor can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. (base to table 1) Suppose Darnell and Eleanor form a cartel and behave as a monopolist. The profit-maximizing price is $_____ per gallon, and the total output is _____ gallons. As part of their cartel agreement, Darnell and Eleanor agree to split production equally. Therefore, Darnell's profit is $_______, and Eleanor's profit is $______. Suppose that Darnell and Eleanor have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Darnell says to himself, "Eleanor and I aren't the best of friends anyway. If I increase my production to 45 gallons more than…arrow_forward
- Please answer fastarrow_forwardCournot duopolists face a market demand curve given by P = 60 – 1/2Q, where Q is total market demand in units. Each firm can produce output at a constant marginal cost of $15/unit. a) What is the equilibrium price and quantity produced by each firm? b) What if the firm's engaged in Bertrand competition? c) What if one of the firms chose its quantity before its competitor? What is the name for this sort of competition? d) Which of the three forms of competition gives the greatest social surplus?arrow_forwardThe table shows a hypothetical demand schedule for monosodium glutamate (MSG). Ajinomoto holds 5050% of the market, Jiali holds 3030% of the market, and Quingdao holds 2020% of the market. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. What quantity maximizes the cartel's profit? Price of MSG ($ per pound) Quantity of MSG demanded (millions of pounds) $8$8 00 $7$7 2020 $6$6 3030 $5$5 4040 $4$4 6060 $3$3 9090 $2$2 110110 $1$1 180180 $0$0 300300 million pounds million pounds Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. How would this affect the incentive of Ajinomoto to act noncooperatively and change its output? Ajinomoto will not have an incentive to change its output. Ajinomoto will have an incentive to increase its output of MSG.…arrow_forward
- Gotcha, the only seller of stun guns, faces the inverse market demand curve, P = 400 - 120, where Q measures the number of stun guns sold per day, and P is the price per stun gun. The marginal cost is constant at $64. Suppose a new firm, Ouchy, enters the stun gun market. Ouchy's marginal cost is also constant at $64. Gotcha and Ouchy agree to form a cartel and evenly split the market output. Gotcha holds to the agreement, but Ouchy decides to produce 5 more stun guns than its level under the cartel agreement. In this case, the market price is $. 172 192 232 205arrow_forwardUgly Dolls Inc. (UD) is a firm in Mytown that sells its products on a market under monopolistic competition. The cost function of UD is represented by TC = 100+10Q. Lately, because of the UD is making a big amount of profit, some firms enter the market to compete. Assume that Mytown engages in free trade in the dolls markets with Yourtown, who also faces a market with monopolistic competition. Because of this we can expect that, (a) The numbers of firms operating in this market will not change. (b) At equilibrium the profit of firms will increase. (c) The quantity of types of dolls available to consumers will increase. (d) All the above answers are correct.arrow_forwardSuppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) = 40q. Thus the marginal and average cost for each firm is €40. Assume the demand curve for the industry is given by P = 100 – Q. Suppose the two firms get together and form a cartel and divide the market equally between them. The output produced by each firm will be A. 25 B. 10 C. 15 D. 20arrow_forward
- Assume that car producers compete on a monopolistically competitive market. The fixed costs F associated with producing cars is 5 billion, and each car costs an additional 15 000 to produce. Price is defined as P = c + 1/bn = 15 000 + 300/n, where n is the number of firms in the industry, and all firms are symmetric (such that they all charge the same price and each produce 1/n of the market S, i.e., Q = S/n). The size of the US market is 300 million cars and the size of the European market is 533 million cars. Assume that the US and Europe start trading with each other. What is the equilibrium number of firms on the integrated market? a. 4 b. 5 c. 6 d.7 e. 8arrow_forwardConsider a duopoly, i.e., an industry with only two firms: firm A and firm B, making the same product. The industry’s inverse demand is P(Q)=320−(1/5)Q, where P is the market price and Q is the total industry output. Each firm has a marginal cost MC of $20. There are no fixed costs and no barriers to exit the market. a) Suppose that the two firms engage in Cournot competition. Find the equilibrium price PNE in the industry, the equilibrium outputs QANE and QBNE, as well as the profits πANE and πBNE, for each firm. b) Suppose the marginal cost for firm B increases from $20 to $140, while everything else remains unchanged. Find the new equilibrium price PNE in the industry, the new equilibrium outputs QANE and QBNE, as well as the new profits πANE and πBNE for each firm. c) Suppose that, in addition to the marginal cost increase from $20 to $140 from sub question b), firm B also has a fixed cost of $2500, out of which $2100 may be recouped if it shuts down; everything else remains…arrow_forwardA two-firm coal cartel that produces at a constant marginal cost of £22 faces a market inverse demand curve of P= 102 - 0.47Q. Initially, both firms agree to act like a monopolist, each producing 42.55 tonnes of coal. If one of the firms cheats on the agreement (assuming the other firm is compliant and continues to produce at 42.55 tonnes), to within 2 decimal places (e.g. 1.92) the cheating firm will produce 数字 tonnes of coal.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage LearningSurvey of Economics (MindTap Course List)EconomicsISBN:9781305260948Author:Irvin B. TuckerPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Survey of Economics (MindTap Course List)
Economics
ISBN:9781305260948
Author:Irvin B. Tucker
Publisher:Cengage Learning