Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 15, Problem 1RQ
To determine
Invention, Innovation and Diffusion.
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1.Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case, justify your classification. LO1
5. Suppose that two oil companies - BP and Exxon - own adjacent natural gas fields. The
profits that each firm earns depends on both the number of wells it drills and the number of
wells drilled by the other firm. The table below lists each firm's individual profits:
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Drill one well
Drill two wells
Drill one well S10 million, $10 million $6 million, $12 million
BP Drill two wells S6 million, $12 million
$8 million, $8 million
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a. Does BP have a dominant strategy? If yes, describe it.
b. Does Exxon have a dominant strategy? If yes, describe it.
c. Is there a Nash equilibrium? If yes, describe it.
d. Suppose BP and Exxon can collude, what will be their choices?
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Chapter 15 Solutions
Economics (Irwin Economics)
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- Fill in the columns in the following table. (Enter your responses as whole numbers.) TFC TVC $5 $0 5 3 q 0 1 2 3 4 5 5 5 5 5 5 5 9 16 25 36 ԼՈ MC P = MR $5 5 5 5 S LO 5 40 5 5 TR $0 TC $5 Profit $-5arrow_forwardQuestion Suppose Coca Cola and PepsiCo are producing a new, healthy version of Coke and Pepsi. They are trying to figure out how much of this new soda to produce. They know: (i) If they both produce 10,000 liters a day, they will make the maximum attainable joint economic profit of $200,000 a day, or $100,000 a day each. (ii) If either firm produces 20,000 liters a day while the other produces 10,000 a day, the one that produces 20,000 liters will make an economic profit of $150,000 and the other will incur an economic loss of $50,000. (iii) If both produce 20,000 liters a day, each firm will make zero economic profit. (a) Describe the payoff matrix for the game that Coca Cola and PepsiCo must play. (b) Find the Nash equilibrium of the game that Coca Cola and PepsiCo play.arrow_forwardThe graph below shows a duopolistic market. The firms in this market produce and sell identical products. The graph below shows the market demand, a corresponding marginal revenue curve for the product, and an identical marginal cost curve for each firm. Assume both firms have the goal of maximising economic profit. If the two firms were to collude, what would be the total economic profit made by each firm? O O O $24 $6 $16 $8 Price ($) 10 9 8 7 $0 6 5 4 3 2 1 0 0 Insufficient information to determine economic profit of each firm. 1 2 3 4 MR 5 6 7 8 9 MC D 10 Quantityarrow_forward
- Suppose there are two firms in an industry and the inverse demand function for the industry is: P = 45 - 20 Assume that the MC functions for the two firms are: MC1 = 15 MC2 = 12 What is the price under Courbet model? O 15 O 24 O 30 O 36 O 21arrow_forwardAssume there are two firms, firm A and B, engaged in Cournot competition. The industry demand curve is given by P = 60-Q, where Q = QA+QB denotes industry output. Each firm faces a marginal cost of production equal to $30. In equilibrium, what will be the output level of firm A? O O O O 10 20 30 40arrow_forwardTable 16-3 The following table shows the output produced by each of the top eight firms in four industries as well as the total industry output for those industries. Firm 1 2 3 4 5 6 7 8 Total Industry A 50,000 47,000 43,000 38,000 32,000 25,000 17,000 8,000 270,000 approximately 46% approximately 54% approximately 57% Industry B Industry C 18,000 37,000 17,750 36,500 17,250 35,500 16,500 34,000 15,500 32,000 14,250 29,500 12,750 26,500 11,000 23,000 130,000 300,000 approximately 61% Industry D Refer to Table 16-3. What is the concentration ratio for Industry B? 40,000 39,000 37,000 34,000 30,000 25,000 19,000 12,000 250,000arrow_forward
- O 4 QUESTION 9 In the Bertrand model, suppose that each firm has a marginal cost of £10 and that firm 1 sets a price of £9.99, which of the following a best-response for firm 2? Click all the correct answers. O £9.99 O £10.01 O £11.01 O E10.00 O £9.98arrow_forward18. Answer the next question based on the payoff matrix for a two-firm oligopoly where the numbers represent the firms' respective profits given each of their pricing strategies: FIRM Y O $ 800,000 O $1,000,000 O $1,450,000 Strategies: High-price If both firms collude to maximize joint profits, O $1,250,000 FIRM X High-price X = $625,000 Y = $625,000 Low-price X = $275,000 Y = $725,000 Low Price X = $725,000 Y = $275,000 X = $400,000 Y = $400,000 tal profits for the two firms will be:arrow_forwardQUESTION 8 Two firms with the same (constant) marginal costs are engaging in Bertrand competition. One of the companies exits the industry. As a a consequence, the price for the other firm increases by 50%. What is the elasticity of demand at the new market price? O4 O 3 O 2.5 O More information is needed. 02arrow_forward
- Intel and Advanced Micro Devices make most of the chips that power a PC. What makes the market for PC chips a duopoly? The PC chip market is a duopoly if O A. at the efficient scale, two firms can satisfy the market demand OB. each firm can divide its consumers into two categories-business consumers and household consumers O C. the two firms can charge different prices for the same quality of PC chip O D. the market produces two goods Assume that Intel and Advanced Micro Devices have identical costs. The graph shows the market demand curve. Draw the average total cost curve of one firm if the chip market produces 800 chips an hour and other firms are prevented from entering. Label the curve. Draw a point on the average total cost curve at the efficient scale. 110- 100- 90- 80+ 70- 60+ 50- 40- 30- 20+ 10- 0- Price (dollars per chip) 0 $800 200 400 800 600 Quantity (chips per hour) >>> Draw only the objects specified in the question. D 1000 Q Q 1200arrow_forwardQuestion 2 [JP.14.3.19] Consider a duopoly where the market demand is described by the equation: P = 150- Q. The marginal cost for each firm is $60. lo.] If the firms compete simultaneously with output, what is each firm's profit-maximizing output, the market quantity, and the price each firm charges? (b.) What is the economic profit eamed by each firm (from question [a]} [c.) If Firm 1 is a leader in output, what is each firm's profit-maximizing output, the market quantity, and the price each firm charges? [d.] What is the economic profit earned by each firm (from question [c])?arrow_forwardQuestion 2 AnimoSpace Support ? Given the perfect competitor firm's supply curve below, what is the shutdown price? P(cost) MC AC 80 AVE 70 60 50 40 30 20 (10,10) 10 10 20 30 40 50 60 70 80 90 100 110 12 Qty Break-even quantity: Shutdown price: O 50 O 70 O 35 IS O 80 O 5 a Question 3 Which of these market structures is not correctly described? Monopolistic Nliaonoly Mononolhe o searcharrow_forward
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