Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134643175
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Chapter 12, Problem 5E
To determine
The change in the marginal cost of a firm and the impact on market
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Two firms compete by choosing price. Their demand functions are: Q1 = 20 -P1 +P2 and Q2 = 20 - P1 + P2 where P1 and P2 are the prices charged by each firm, respectively, and Q1 and Q2 are the resulting demands. Note that the demand for each good depends only on the difference in prices; if the two firms colluded and set the same price, they could make that price as high as they wanted and earn infinite profits. Marginal costs are zero.a. Suppose the two firms set their prices at the same time. Find the resulting Nash equilibrium. What price will each firm charge, how much will it sell, and what will its profit be? (Hint: Maximize the profit of each firm with respect to its price.) {15 Marks}b. Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will it sell, and what will its profit be? {10 Marks}c. Suppose you are one of these firms and that there are three ways you could play the game: (i) Both firms set price at the same…
Two firms are engaged in duopoly competition in a market with demand Q = 120 - p and zero costs.
The reaction function for firm i given firm j's output q i = 60 - 1 2 q j .
What is the payoff to firm i if the two firms engaged in collusion to maintain monopoly output and prices. Assume that each firm gets half the monopoly profit.
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?
Chapter 12 Solutions
Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (9th Edition) (Pearson Series in Economics)
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