Which of the following is a main objection to the standard Bertrand model of price competition that we have discussed? The assumption that firms directly set their own prices is unrealistic. The model predicts that equilibrium profit per-unit is strictly negative. The assumption that firms interact only one time is unrealistic. The model uses too much math.
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- In the model of Bertrand Competition, it been found that firms would compete, driving price down to marginal cost so that firms make zero economic profits. This means there are firms essentially behaving as if they are perfectly competitive, even with just two firms. Despite this very clear prediction, evidence of this outcome is not ofter seen, even in markets where it is believed that firms are indeed competing via price. Why might this be? For instance, what assumptions are made about costs of firms and how might things play out if those assumptions fail? What are some things firms could do in this situation to prevent prices from dropping as low as marginal cost, even if the assumptions on costs are true?Consider the weekly market for gyros in a popularneighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power. The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. (?) (0) 50 45 PRICE (Dollars per gro) 4.0 3.5 30 2.0 15 1.0 D 3.5 30 25 Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obcain exclusive rights to sell gyros in the neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly. Assume that this change does not affect demand and that the marginal cost curve of the new…There are only two driveway paving companies in a small town, Asphalt, Inc. and Blacktop Bros. The inverse demand curve for paving services is ?= 2040 ―20? where quantity is measured in pave jobs per month and price is measured in dollars per job. Assume Asphalt, Inc. has a marginal cost of $100 per driveway and Blacktop Bros. has a marginal cost of $150. Answer the following questions: Determine each firm’s reaction curve and graph it. How many paving jobs will each firm produce in Cournot equilibrium? What will the market price of a pave job be? How much profit does each firm earn?
- The daily demand for bungee jumping over a river in South Africa is given by Q=5000-200P. There are two firms operating and the first one has a daily capacity of 600 people and the second one of 400 people. The marginal cost of operation is 5 for both firms. The two firms compete in prices and announce their prices simultaneously. Calculate the price and profits of both firms.The figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3. irrespective of the market structure. After the market changes from perfect competition to a monopoly.. OA. social surplus decreases OB. consumer surplus increases. OC. deadweight loss decreases OD. the market price decreases -COD- Price/Cost (5) 10 9 10 20 30 MR 40 60 00 Demand 70 BO so Quanety (units)The figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3, irrespective of the market structure What is the surplus enjoyed by the firm when it is the sole supplier of the medicine? OA. 590 OB. $180 OC. $30 OD. $60 Price/Cost (5) 10 1 10 20 30 40 MR Demand 50 60 70 80 90 Quantity (units)
- Two firms facing a demand curve are P = 50 -5Qwhere Q = Q1 + Q2. The cost functions of the two firms are:C1(Q1) = 20 + 10Q1C2(C2) = 10 + 12Q2Based on this information:a. Suppose both companies have entered the industry, then what is the price?and the profit-maximizing amount for the two firms under conditionsperfectly competitive market?b. What is the quantity, price and profit of the two firms ifcompanies collude in pricing?c. What are the quantities, prices, and profits of the two firms if theydo the Cournot strategy, and draw the reaction curves of the twothe company?d. What are the quantity, price, and profit of the two firms if theycarry out the stakeberg strategy.Three firms are producing a good and are competing in prices: consumers buy from the firm that has the lowest price, and each firm on its own can satisfy the entire market. If more than one firm choose the same price the demand is divided equally among them. There are no other firms in the market. Two firms have the same constant marginal cost cL and the third one has a higher marginal cost cH : cL < cH . Explain what will be the equilibrium price in this market.Sort the following characteristics by whether they describe competitive markets, firms that can perfectly price-discriminate, both, or neither. Items (4 items) (Drag and drop into the appropriate area below) result in some deadweight loss Categories zero economic profit in the long run Competitive market Drag and drop here maximize total surplus Perfect price discrim. Drag and drop here eliminate consumer surplus Both Drag and drop here Neither Drag and drop here
- Short-run supply and long-run equilibrium Consiber the competitive market for rhodium. Assume that no matter how many firms operate in the induatry, every firm is identical and faces the same marpinal cost (MC), averapt total cost (ATC), and average variable cost (AVC ) curves plotted in the following praph. The following graph plots the market demand curve for thodium. If there were 10 firms in this market, the short-run equilibrium price of rhodium would be per pound. At that price, firms in this industry would. Therefore, in the long run, firms would the rhodium market. Because you know that competitive firms earn economic profit in the long run, you know the long-run equilibrium price must be per pound. From the graph, you can see that this means there will be firms operating in the rhodium industry in long-run equilibrium. True or False: Assuming implicit costs are positive, each of the firms operating in this industry in the long run earns positive accounting profit. True FalsePrice-discriminating firm Cho owns a plot of land in the desert that isn’t worth much. One day, a giant meteor falls on her property. The event attracts scientists and tourists, and Cho decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show demand (D) curves and marginal revenue (MR) curves for the two markets. Cho’s marginal cost of providing admission tickets is zero. I hope you can see a clear picture.One of the observations that has been made about the pricing of products produced in an industry where production is highly concentrated is that the costs of production can change up or down and yet prices do not change much. The Sweezy model was developed to explain this observation. Present a Sweezy model, show a cost change, and show that the optimal choice for the firm is to leave the product price unchanged. Provide words to explain the basic reason why the price does not move up or down as costs change.