Optimal level of output if the rival firm produces 50 units.

Question

The diagram illustrates the reaction functions and isoprofit curves for a homogeneous-product duopoly in which each firm produces at constant marginal cost. a. If your rival produces 50 units of output, what is your optimal level of output? b. In equilibrium, how much will each firm produce in a Cournot oligopoly? c. In equilibrium, what is the output of the leader and follower in a Stackelberg oligopoly? d. How much output would be produced if the market were monopolized? e. Suppose you and your rival agree to a collusive arrangement in which each firm produces half of the monopoly output. (1) What is your output under the collusive arrangement? (2) What is your optimal output if you believe your rival will live up to the agreement?

Answer 1

Question

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

d.

To determine

Level of output produced if markets are monopolized.

(1)

To determine

Output under collusive arrangement.

(2)

To determine

Optimal output if the rival lives up to the agreement

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The diagram illustrates the reaction functions and isoprofit curves for a homogeneous-product duopoly in which each firm produces at constant marginal cost. a. If your rival produces 50 units of output, what is your optimal level of output? b. In equilibrium, how much will each firm produce in a Cournot oligopoly? c. In equilibrium, what is the output of the leader and follower in a Stackelberg oligopoly? d. How much output would be produced if the market were monopolized? e. Suppose you and your rival agree to a collusive arrangement in which each firm produces half of the monopoly output. (1) What is your output under the collusive arrangement? (2) What is your optimal output if you believe your rival will live up to the agreement?

In a homogeneous products duopoly, each firm has a marginal cost curve MC= 10, i= 1,2. The market inverse demand curve is P= 50−Q, where Q = Q1+Q2. a) What would be the equilibrium price in this market if firms acted as price-taking firms? b) What would be the equilibrium price in this market if the two firms acted as a profit-maximizing cartel? Obtain the Lerner index c) What would be the Cournot equilibrium quantities, price and profit in this market? Obtain the Lerner index of each firm and compare it to b)

Consider an oligopoly with three firms that produce a homogeneous product. The market demand for the industry is Q = 120 - P. Market supply is determined by the output decisions of the firms. That is, Q = q1 + q2 + q3, where qi is the output of firm i. Each firm can produce at zero cost, and the firms behave non-cooperatively in deciding their output levels.A) Find the Cournot equilibria in this industry.B) What are the profits of each firm?C) Would (any) two firms have an incentive to merge, effectively converting the industry into a duopoly? (Justify your answer.)

Answer 2

Question

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

d.

To determine

Level of output produced if markets are monopolized.

(1)

To determine

Output under collusive arrangement.

(2)

To determine

Optimal output if the rival lives up to the agreement

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Answer 3

Question

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

d.

To determine

Level of output produced if markets are monopolized.

(1)

To determine

Output under collusive arrangement.

(2)

To determine

Optimal output if the rival lives up to the agreement

Expert Solution & Answer

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Answer 4

Question

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

d.

To determine

Level of output produced if markets are monopolized.

(1)

To determine

Output under collusive arrangement.

(2)

To determine

Optimal output if the rival lives up to the agreement

Expert Solution & Answer

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Answer 5

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

d.

To determine

Level of output produced if markets are monopolized.

(1)

To determine

Output under collusive arrangement.

(2)

To determine

Optimal output if the rival lives up to the agreement

Answer 6

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

Answer 7

Chapter 9, Problem 3CACQ

a.

To determine

Optimal level of output if the rival firm produces 50 units.

Answer 8

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

Answer 9

b.

To determine

Quantity produced by each firm in a Cournot oligopoly.

Answer 10

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

Answer 11

c.

To determine

Output of leader and follower in Stackelberg oligopoly.

Answer 12

d.

To determine

Level of output produced if markets are monopolized.

Answer 13

d.

To determine

Level of output produced if markets are monopolized.

Answer 14

(1)

To determine

Output under collusive arrangement.

Answer 15

(1)

To determine

Output under collusive arrangement.

Answer 16

(2)

To determine

Optimal output if the rival lives up to the agreement

Answer 17

(2)

To determine

Optimal output if the rival lives up to the agreement

Answer 18

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Answer 29

Ch. 9 - Prob. 1CACQ Ch. 9 - Prob. 2CACQ Ch. 9 - Prob. 3CACQ Ch. 9 - Prob. 4CACQ Ch. 9 - Prob. 5CACQ Ch. 9 - Prob. 6CACQ Ch. 9 - Prob. 7CACQ Ch. 9 - Prob. 8CACQ Ch. 9 - Prob. 9CACQ Ch. 9 - Prob. 10CACQ

Optimal level of output if the rival firm produces 50 units.

Solution Summary: The author explains that duopoly is the type of market in which two firms are present.

Optimal level of output if the rival firm produces 50 units.

Quantity produced by each firm in a Cournot oligopoly.

Output of leader and follower in Stackelberg oligopoly.

Level of output produced if markets are monopolized.

Output under collusive arrangement.

Optimal output if the rival lives up to the agreement

Chapter 9 Solutions