EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 9780134516196
Author: BADE
Publisher: PEARSON CO
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Chapter 18, Problem 4IAPA
To determine
To find:
Whether Company W will believe Company A's assertion or not and whether the Company W will enter the market or not.
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Suppose two companies, Apples and Dell, are a competing duopoly.
If both companies charge the high price, they each earn $700 million in economic profit.
If both companies charge the low price, they each earn $500 million in economic profit.
If one company charges a high price and the other a low price, the company charging the higher price earns $450 million in economic profit and the company charging the lower price earns $800 million in economic profit.
1. What is the Nash equilibrium? Select all possible answers from the answer list.
2. Thinking back to your answer for the Nash equilibrium, can firms do better than the outcome you identified? Explain.
Joe and Rebecca are small-town ready-mix concrete duopolists. The market demand function is Qd = 10,000 – 100P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $25 per cubic yard. Suppose that Joe and Rebecca compete in quantities and competition in this market is described by Cournot model. What are Joe and Rebecca’s Nash equilibrium outputs? What is the resulting price? What do they each earn as profit? How does the price compare to the marginal cost?
Joe and Rebecca are small-town ready-mix concrete duopolists. The market demand function is Qd = 10,000 – 100P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $25 per cubic yard. Suppose that Joe and Rebecca compete in quantities and competition in this market is described by Cournot model. What are Joe and Rebecca’s Nash equilibrium outputs? What is the resulting price? What do they each…
Discuss why a producer in an oligopolist market ("few" competitors) will pay closer attention to their competitors than a producer in a highly competitive market ("many" competitors).
Chapter 18 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 18 - Prob. 1SPPACh. 18 - Prob. 2SPPACh. 18 - Prob. 3SPPACh. 18 - Prob. 4SPPACh. 18 - Prob. 5SPPACh. 18 - Prob. 6SPPACh. 18 - Prob. 7SPPACh. 18 - Prob. 8SPPACh. 18 - Prob. 1IAPACh. 18 - Prob. 2IAPA
Ch. 18 - Prob. 3IAPACh. 18 - Prob. 4IAPACh. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Prob. 7IAPACh. 18 - Which of the following statements is incorrect. In...Ch. 18 - If firms in oligopoly form a cartel, it will...Ch. 18 - Prob. 3MCQCh. 18 - Prob. 4MCQCh. 18 - Prob. 5MCQCh. 18 - Prob. 6MCQCh. 18 - Prob. 7MCQ
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- Suppose we have the "classic" Cournot duopoly model, with a linear demand curve P = a - bQ And two firms which are identical, each with total costs TC(q) = c + dq. (a) What is the market price in the Cournot equilibrium and what profit is earned by an individual firm?(b) Compare individual quantity, market quantity, market price, individual profits and consumer surplus ( show it in a graph) to the outcomes of this market were a monopoly. Comment on your results. Show all the steps of the calculationarrow_forwardpic 1 : A small town is served by many competing supermarkets, which all have the same constant marginal cost. Use the black point (plus symbol) to show the competitive price and quantity in this market. Then use the green area (triangle symbol) to shade the area representing consumer surplus in the market for groceries, and use the purple area (diamond symbol) to shade the area representing producer surplus. pic 2 : Now suppose that the independent supermarkets combine into one chain. Use the black point (plus symbol) to show the profit-maximizing monopoly outcome. Then use the green area (triangle symbol) to shade the area representing consumer surplus in the market for groceries, and use the purple area (diamond symbol) to shade the area representing producer surplus. Finally, use the black area (plus symbol) to shade the area representing deadweight loss. Which of the following statements is true about the changes that occur after the supermarkets merge?…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
- Two firms compete in selling identical widgets. They choose their output levels Q1 and Q2 simultaneously and face the demand curve P = 30 - Q where Q = Q1 + Q2. Until recently, both firms had zero marginal costs. Recent environmental regulations have increased Firm 2’s marginal cost to $15. Firm 1’s marginal cost remains constant at zero. TRUE-FALSE: Is the following statement true of false? ”As a result, the market price will rise to the monopoly level.” Solve for the Cournot equilibrium and write a convincing explanation of your answer.arrow_forwardCournot’s Model of Duopoly) Joe and Rebecca are small-town ready-mix concrete duopolists. The market demand function is Qd=5500-25P, where P is the price of a cubic metre of concrete and Qd is the number of cubic metres demanded every year. The marginal cost is $40 per cubic metre. Competition in this market is described by the Cournot model. (a)Given Rebecca’s output is 2000, what is Joe’s residual demand function? What is Joe's output so he maximizes his profit? (b)If Rebecca’s output is qR, what is Joe’s best response function? (c)If Joe’s output is qj, what is Rebecca’s best response function? (d)Plot both Joe and Rebecca’s best response functions on one graph, where the the horizontal axis represents Rebecca’s output qR and the vertical axis represents Joe's output qR. (e)What is the meaning of the interception of the two best response functions?arrow_forward
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