1. There are two mobile phone firms operating in a market; FF (Firm 1) and Wodaphone (Firm 2). The market demand is P = 75-0.5(Q1 + Q2). The total costs for the two firms are 30Q1 and 30Q2. (a) If either FF or Wodaphone enjoyed a monopoly position in this market, what level of output would they produce? (b) Using a diagram, fully labelled, describe how the equilibrium outputs for the two firms are determined and solve mathematically for this solution.
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- Cournot’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?Repeated Game and Collusion Consider two firms that are playing a Bertrand game at each stage of an infinitely repeated game. They have the same discount factor 8 < 1 and the same constant marginal cost c. If they co-operate in the stage game then they each produce half the monopoly quantity q" and sell at the monopoly price p". (a) What strategies, based on a threat of charging c in the stage game, will produce the collusive outcome? (b) For what values of o do these strategies constitute a sub-game perfect Nash equi- librium?Consider a simple monopolistic competition industry (many firms) in whicheach firm in the industry has one store. The store costs $200 per week andthe marginal cost is $10 per unit of output in addition to the fixed cost of the store. Hint: Mathematically this problem can be solved just like a monopoly problem. (a) If the typical the demand facing each individual firm is QD = 40−P eachweek, what price will a typical firm in this industry charge? (Hint: IfQD = 40 − P then P = 40 − QD and MR = 40 − 2QD). (b) Is the firm making a positive profit? What is the producer surplus? Whatis the profit after fixed costs? (c) Will new firms enter the market if demand stays the same and new firmsface the same demand and have the same costs? (d) In general, what is the long run profit of an average firm in a monopolistically competitive market.
- 7. : Monopoly with a competitive fringe Precious Metals Inc. (PMI) is a near-monopoly supplier of iridium. There is also a competitive fringe of iridium producers. Market demand for iridium is represented by the following function: pD (Q) = 400 – 2Q The fringe producers face marginal extraction costs of MC,(qr) = 30 + 0.5qp while PMI has marginal costs of $20/kg. If the competitive fringe is not participating in the market, the marginal revenue of PMI is MR(Q) = 400 – 4Q If the competitive fringe is participating in the market, the marginal revenue of PMI is MR(Q) = 100 – Q Note: Prices are measured in dollars/kilogram ($/kg) and quantity is measured in kilograms (kg) Answer the following questions: a. Calculate the residual demand facing PMI after accounting for the quantity supplied by the competitive fringe Answer the following questions: a. Calculate the residual demand facing PMI after accounting by the competitive fringe the quantity supplied b. Plot the demand and residual…Which of the following statements about a monopoly is true? (a) The monopolist has a flat demand curve because of high barriers to entry.(b) For a monopolistic firm, profit will be maximised where price = marginalrevenue.(c) In the long run, a monopolist can earn only normal profits.(d) Price, in the long run, is not usually equal to the minimum average totalcost.Q.1.19 Which of the following will NOT shift the market supply of labour curve? (a) A change in the wages of the labourers.(b) A change in migration.(c) A change in the size of the population due to a change in birth or deathrates.(d) Trade union action.Assume that a firm can obtain a monopoly the market shown in Figure 1 by lobbying for favorable government regulation. How much would a firm be willing to spend to obtain such a monopoly? Question options: a) $16.50 b) $4.50 c) $12 d) $7.50
- 1. Consider the (inverse) market demand function for the market in streaming services. P = 120 - 4Q Assume further that the available technology results in Marginal Cost equal to $40. a) Graphically show the market outcome for monopoly, Cournot oligopoly and perfect competition. b) For monopoly, Cournot duopoly and perfect competition determine the optimal outcome. Clearly explain how you arrive at your answer. What are the market price and quantity under each market structure? c) What are the consumer surplus, producer surplus and total surplus under each scenario? d) Show the reaction function under Bertrand competition. What are the associated price and quantity?The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. (? 20 18 Monopoly Outcome 16 14 12 10 ATC MC MR 1 3 5 6 7 8 9 10 QUANTITY (Hundreds of cubic feet) PRICE (Dollars per hundred cubic feet)(i) They compete in quantities with each other (Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly “B+C”, which competes in quantities (Cournot competition) against A.
- Which of the following statements is (are) correct? (x) One key difference between an oligopoly market and a competitive market is that oligopolistic firms sell their product at a price equal to marginal cost while competitive firms do not. (y) Oligopolists are aware that increases in the quantity of output they produce reduce the price of their product, and in this respect they are like monopolists. (z) An oligopolist is similar to a monopolistic competitor in that both have some market power because they both face downward-sloping demand curves. (x), (y) and (z) only (x) and (y) only(x) and (z) only (y) and (z) only (z) onlyThe SolarFarm powerplant has both fixed and variable costs. As the plant expands production, it first has constant returns to scale, and then diminishing returns to scale. (a) Draw a large graph showing (only) the firm’s marginal costs and average total costs in a suitably labelled graph. Show on the graph where the firm’s technology changes from constant-returns to diminishing-returns. SolarFarm is a monopolist with a downward sloping demand curve. Add to your graph a demand and marginal revenue curve. Assume that the demand curve intercepts the average cost curve at its minimum point. Show the quantity and price of electricity in this market. (b) The government connects SolarFarm to a nearby town that is currently without electricity. Show in a new, large, graph how the market price and quantity of electricity sold change as a result. (c) Return to the situation in part (a) of this question. The government discovers a new technology that would allow SolarFarm to never experience…The SolarFarm powerplant has both fixed and variable costs. As the plant expands production, it first has constant returns to scale, and then diminishing returns to scale. (a) Draw a large graph showing (only) the firm’s marginal costs and average total costs in a suitably labelled graph. Show on the graph where the firm’s technology changes from constant-returns to diminishing-returns. SolarFarm is a monopolist with a downward sloping demand curve. Add to your graph a demand and marginal revenue curve. Assume that the demand curve intercepts the average cost curve at its minimum point. Show the quantity and price of electricity in this market. (b) The government connects SolarFarm to a nearby town that is currently without electricity. Show in a new, large, graph how the market price and quantity of electricity sold change as a result. (c) Return to the situation in part (a) of this question. The government discovers a new technology that would allow SolarFarm to never experience…