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
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Question
Chapter 12, Problem 4E
a)
To determine
To calculate: The optimum output and the selling price for each firm.
b)
To determine
To calculate:
The amount of total industry output is higher
c)
To determine
To calculate:
The higher quantity of the total industry profits
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Consider an industry with 4 firms with the same total cost function TC(q) = 20q. The demand function is p= 260 − 2Q. (a) Solve for Cournot equilibrium: how much each firm produces in equilibrium? What is an equilibrium price and profits? (b) What will be the profit of each firm if all the firms join the cartel? (c) If one of the firms wants to deviate from the cartel agreement, what output should it set? Calculate the profit of the cheating firm.
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…
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.
Chapter 12 Solutions
Bundle: Managerial Economics: Applications, Strategies And Tactics, 14th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
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