Study Guide for Microeconomics
9th Edition
ISBN: 9780134741123
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 12, Problem 4RQ
To determine
The stable cournot equilibrium.
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Students have asked these similar questions
In the Cournot oliogopoly model, firms compete by setting quantities. In class we noted that as the number of firms in the market grows very large, the outcome looks increasingly like what other model we studied? Provide intuition for your answer.
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?
Why do consumers fair better under a Stackelberg Oligopoly than a Cournot Oligopoly?
How can it be that a monopoly can be as efficient as a perfectly competitive market?
Chapter 12 Solutions
Study Guide for Microeconomics
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Similar questions
- What is the difference between collusion and competition? Group of answer choices 1-Competition is when firms operate independently. Collusion is when firms in the oligopoly market structure try to invite new entrants into the market to make it more competitive. 2-Collusion is when firms act together in ways to reduce output, keep prices high, and divide up markets. Competition is when firms operate independently. 3-Competition firms follow the price changes and product changes of the dominant firm in an oligopolistic market. Collusion is when firms operate independently. 4-Collusion is when firms follow the price changes and product changes of the dominant firm in an oligopolistic market.Competition is when firms operate independently.arrow_forwardCompare the industry output and price in a Cournot versus a competitive equilibrium. Do firms earn economic profits in the Cournot model? Does economic theory predict that firms always earn economic profits in oligopolistic industries? Explain. What does the empirical evidence indicate?arrow_forwardAs the number of firms in an oligopoly industry decreases, the market moves closer to a __________ market. Over the last 60 or so years, the percentage of women with paid jobs has increased significantly. Is this increase in female employment associated with an increase in the demand for labor, or is it associated with an increase in the supply of labor? How does increased immigration affect the labor market? How would the equilibrium wage and the equilibrium quantity of labor be affected?arrow_forward
- 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?arrow_forwardWhich of the following statements about the classic Cournot duopoly model is incorrect? 1)The products of the two firms are homogeneous. 2) It is a static game with complete information. 3) The two firms decide on their prices and let their quantities be dictated demand conditions. 4) There exist examples that have unique Nash equilibrium points.arrow_forwardConsider a Duopoly model, in which two firms decide a quantity sequentially. For the convenience, let's say Firm 1 is a dominant firm and Firm 2 is a follower. The market demand is given by P=110 - 5Q, where Q is the total output (i.e., Q=Q1+Q2). Each firm has an identical cost function, TCi=7Qi, i=1, 2. Each firm maximizes its profit by choosing the quantity. In this Stackelberg equilibrium, Firm 1 will sell __________ units.arrow_forward
- Consider a Duopoly model, in which two firms decide a quantity sequentially. For the convenience, let's say Firm 1 is a dominant firm and Firm 2 is a follower. The market demand is given by P=110 - 5Q, where Q is the total output (i.e., Q=Q1+Q2). Each firm has an identical cost function, TCi=7Qi, i=1, 2. Each firm maximizes its profit by choosing the quantity. In this Stackelberg equilibrium, Firm 1 will sell how many units.arrow_forwardThe above figure shows the reaction functions for two pizza shops in a small isolated town. Identify the Cournot equilibrium point. What is the level of output that will be produced in collusion? What output will correspond to a perfect competitive outcome? Explain if Firm B producing 100 pizzas and firm A producing 50 pizzas will correspond to a Cournot equilibrium.arrow_forward
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