Consider a firm in an oligopoly in which a few sellers offer differentiated brands of widgets. Suppose that if Firm 1 were to cut its price in order to sell more widgets, its competitors would quickly lower their own prices to protect their market shares. If, however, Firm 1 were to raise its price, its competitors would not follow, and Firm 1 would lose market share. Under these (non-ceteris-paribus) assumptions, the demand curve faced by Firm 1 is, in effect, highly elastic at prices above the current price, and less elastic at prices below the current price. Suppose that Firm 1's current price is P* = $10 and it sells Q* = 4 widgets per day. If Firm 1 were to raise its price, it would face the demand: P = 12 – 2Q (P > 10) If Firm 1 were to reduce its price, it would face the demand: P = 14 - Q (P< 10) a) Write the firm's marginal revenue function for prices above and below $10. MR = (P > 10, so: Q* < 4) MR = (P < 10, so: Q* > 4) b) GRAPH Firm l's demand (D) and marginal revenue (MR) curves. Label point E (4, $10). c) Firm 1 has no incentive to change its price as long as: < MC < $_ d) Calculate the elasticity of demand for each demand function at E(4, $10). If Firm 1 raises price: ED = If Firm 1 lowers price: ED =

Consider a firm in an oligopoly in which a few sellers offer differentiated brands of widgets. Suppose that if Firm 1 were to cut its price in order to sell more widgets, its competitors would quickly lower their own prices to protect their market shares. If, however, Firm 1 were to raise its price, its competitors would not follow, and Firm 1 would lose market share. Under these (non-ceteris-paribus) assumptions, the demand curve faced by Firm 1 is, in effect, highly elastic at prices above the current price, and less elastic at prices below the current price. Suppose that Firm 1's current price is P* = $10 and it sells Q* = 4 widgets per day. If Firm 1 were to raise its price, it would face the demand: P = 12 – 2Q (P > 10) If Firm 1 were to reduce its price, it would face the demand: P = 14 - Q (P< 10) a) Write the firm's marginal revenue function for prices above and below $10. MR = (P > 10, so: Q* < 4) MR = (P < 10, so: Q* > 4) b) GRAPH Firm l's demand (D) and marginal revenue (MR) curves. Label point E (4, $10). c) Firm 1 has no incentive to change its price as long as: < MC < $_ d) Calculate the elasticity of demand for each demand function at E(4, $10). If Firm 1 raises price: ED = If Firm 1 lowers price: ED =

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 1E

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If firm 1 and firm 2 are the oligopolistic firms in bottled spring water production in Nomansland. The market demand is given by ? = 5000 −20?, Qd is the number of kilolitres demanded per month while P is the price of kilolitres of bottled water. The marginal cost of a kilolitre of bottled water is R10.How do I Find the Cournot equilibrium quantities and price? and how do I Find the Cournot profits and the monopolist profits?
1) Calculate the equilibrium of linear asymmetric Cournot duopoly. That is, assume that P = a - (q1 + q2), that there is no fixed cost, but the marginal cost of each firm differs, i.e., Firm 1 (Eau) has a cosntant marginal cost of c1, and Firm 2 (Neu) has a constant marginal cost of c2 with c1 < c2. Calculate the consumers' suprlus, each firm's profit as well the as total profit, and the deadweight loss due to oligolpoly. 2) How does the existence of fixed cost change the best-response (reaction) functions in a symmetric Cournot duopoly?
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Suppose that two Japanese companies, Hitachi and Toshiba, are the sole producers (i.e., duopolists) of a microprocessor chip used in a number of different brands of personal computers. Assume that total demand for the chips is fixed and that each firm charges the same price for the chips. Each firm’s market share and profits are a function of the magnitude of the promotional campaign used to promote its version of the chip. Also assume that only two strategies are available to each firm: a limited promotional campaign (budget) and an extensive promotional campaign (budget). If the two firms engage in a limited promotional campaign, each firm will earn a quarterly profit of $14 million. If the two firms undertake an extensive promotional campaign, each firm will earn a quarterly profit of $11 million. With this strategy combination, market share and total sales will be the same as for a limited promotional campaign, but promotional costs will be higher and hence profits will be lower.…
In a repeated game of Bertrand competition, suppose two firms are playing the grim trigger strategy. They discount future payoffs at B. A firm will play the monopoly price and earn 8 every period, so long as the other firm does the same. However, if a firm deviates from playing the monopoly price, the other firm plays the one-shot Bertrand outcome forever. Collusion is a Nash equilibrium if B is Select J [ Select) Space 1 options: less than or equal to, equal to, greater than or equal to Space 2 options: 0, 0.5, 1, 8, 16
Consider a market in which there are two firms: A and B. Each firm produces a differentiated product and chooses its price Assume that each firm can set price equal to $60 or $70. The payoffs associated with each set of prices are shown If the firms choose price simultaneously, then the Nash equilibrium price for firm A If firm A chooses price first and can commit to that price, then firm A will Firm B's Price is set its price equal to $00 $70 OA. $60, $60 OB. $70, $70 $2700 $2475 $60 OC 570, $60 OD. $60, $70 $2700 $3375 Firm A's Price $3375 $3300 $70 $2475 $3300
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. OPEC, the Organization of Petroleum Exporting Countries, was founded in 1969. Their original objective was to form a cartel to increase the price that they receive for their oil exports. Create a prisoner’s dilemma type game for two large members of OPEC (e.g. Saudi Arabia and Indonesia). Create numbers, where payoffs are total annual oil export revenues for each of these two countries. Verbally explain how you got your numbers. Find the Nash equilibrium. Based on this model, what strategy is in the oil exporters’ best interest (Nash or otherwise)? How do they make it happen? Create another prisoner’s dilemmamodel for all of OPEC on one side, and all non OPEC oil exporting nations on the other side. Create numbers, where payoffs are total annual oil export revenues for each of the two sides. Verbally explain how you created your numbers. Also create your numbers applying the fact that OPEC’s total production capacity is greater than total non OPEC exports…
Suppose the robot assistant market consists of two firms: MultiTech and MicroRobo. Each of the two firms must simultaneously choose to set either a high price or a low price for its robots. If both MultiTech and MicroRobo set a high price, their profits will be SEK 30 million each. Conversely, if they both set a low price, their profits will be only SEK 3 million. On the other hand, if one firm sets a high price while the other sets a low price, the high-priced firm will incur a loss of SEK 15 million, while the low-priced firm will gain a profit of SEK 90 million. Answer the following questions: a) Write the payoff matrix of this game. b) How many Nash equilibria are there? Identify each equilibrium, what is the dominant strategy? c) Suppose MultiTech has a well-known brand, therefore receiving profits 15% higher than MicroRobo in all strategies. Explain how this would affect the payoff matrix and the firms' strategies.
Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) - 40g Assume that the demand curve for the industry is given by P= 190 -Q and that each firm expects the other to behave as a Cournot compedtor. Calculate the Coumot-Nash equilibrium for each firm, assuming that each chooses the output level that maximizes as profes when taking its rival's output as given. What are the profits of each firm? (Round all quantities and dollar amounts to two decimal places) When competing, each firm will produce units of output. In tum, each firm will earn profit of $. What would be the equilibrium quantity if Texas Air had constant marginal and average costs of $10 and American had corntant marginal and average costs of S407 It Texas Air had constant marginal and average costs of $10 and American had constant marginal and average costs of S40, American would produceunits and Texas Air Corp. would produce units. In…