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- Question 3 The inverse market demand for fax paper is given by P=100-Q. There are two firms who produce fax paper. Firm 1 has al cost of production of C₁= 15*Q₁ and firm 2 has a cost of production of C₂=20*Q₂. 1) Suppose firm 1 and firm 2 compute simultaneously in quantities. What are the Cournot quantities and prices? What are the profits of firm 1 and 2? 2) Suppose firm 1 and firm 2 compete simultaneously in prices. What are the Bertrand quantities and prices? What are the profits of firm 1 and 2? 3) Suppose that firm play a Stackelberg game. First firm 1 sets the quantity in t=1, then, knowing which quantity firm 1 has set, firm 2 chooses the quantity in t=2. What are the Stackelberg quantities and prices? What are the profits od firm 1 and 2? Compared to part a) which firm benefits and which firm loses?9: Suppose there are two restaurants on an island, Ace's (A) and Betty's (B). They both have to decide how many meals, qa and qB, to sell per day. For Q = qA + ¶B, the market demand function for meals is p = 120 – Q || Both restaurants face a marginal cost per meal of $30. (1) Find the Cournot equilibrium quantities and prices. (2) What if the restaurants decide to form a cartel and split the production and profits evenly. How much will each firm produce and what price do they charge? (3) Suppose they competed with prices instead of quantities. Find the Bertrand equilibrium quantities and prices. (4) Find the deadweight loss of Cournot competition, Bertrand competition, and of the cartel outcome. Then rank each of these from least deadweight loss to most deadweight loss. For the rest of the problem, assume firms compete in quantities (Cournot) and there is no cartel. (5) Suppose Betty's marginal cost per meal increases to $60. Ace's marginal cost remains at $30. What are the new…1 Consider two identical firms with a unit cost of production of $10 and a market demand of p= 60-y. (a) What is firm 1’s optimal output level as a function of firm 2’s output? (b) What is firm 2’s optimal output level as a function of firm 1’s output? (c) What is the Cournot equilibrium output level for these firms? (d) What is the Cournot equilibrium price level? Show your work step by step.
- 1. The market (inverse) demand function for a homogeneous good is P(Q) = 10 - Q. There are two firms: firm 1 has a constant marginal cost of 2 for producing each unit of the good, and firm 2 has a constant marginal cost of 1. The two firms compete by setting their quantities of production, and the price of the good is determined by the market demand function given the total quantity. a. Calculate the Nash equilibrium in this game and the corresponding market price when firms simultaneously choose quantities. b. Now suppose firml moves earlier than firm 2 and firm 2 observes firm 1 quantity choice before choosing its quantity find optimal choices of firm 1 and firm 2.Oligopoly: Quantity Competition 1. Consider two duopolists who each have a constant marginal cost c = c2 = 2 and face inverse demand P = 4 – Q,where Q = Q1+ Q2 is the total output of both firms.The inverse market demand for fax paper is given by P=100-Q. There are two firms who produce fax paper. Firm 1 has a cost of production of C1= 15*Q1 and firm 2 has a cost of production of C2=20*Q2 a) Suppose firm 1 and firm 2 compute simultaneously in quantities. What are the Cournot quantities and prices?What are the profits of firm 1 and 2?b) Suppose firm 1 and firm 2 compete simultaneously in prices. What are the Bertrand quantities and prices?What are the profits of firm 1 and 2?
- . The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the firms independently produces a quantity of output, and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms. Firm 2 is known to have a cost advantage over firm 1. A recent study found that the (inverse) market demand curve faced by the two firms is P = 280 – 2(Q1 + Q2), and costs are C1(Q1) = 3Q1 and C2(Q2) = 2Q2. a. Determine the marginal revenue for each firm. b. Determine the reaction function for each firm.Two firms produce identical products at zero cost, and theycompete by setting prices. If each firm charges a low price,then both firms earn profits of zero. If each firm charges ahigh price, then each firm earns profits of £30. If one firmcharges a high price and the other firm charges a low price,the firm that charges the lower price earns profits of £50, andthe firm charging the higher price earns profits of zero. (a) Which oligopoly model best describes this situation?(b) Write this game in normal form.(c) Suppose the game is infinitely repeated. Can theplayers sustain the "collusive outcome" as a Nashequilibrium if the interest rate is 50 percent? Explain. Please answer the a, b and c parts.Question 3 Assume we have a market with only two companies in it, Company X and Company Y. Now suppose that both companies have to choose one of two potential strategies for pricing their products: setting a low price or setting a high price. The table below shows the expected profits for each company under each pricing scenario. Assume both companies are in competition with each other and seek to maximize their profits. Under these conditions, how much profit should we expect both companies to earn? Company Y Provide your answer below: High Price Low Price High Price Profit for Company Y: $12, 975,000 Profit for Company X: $12, 975,000 Profit for Company Y: $16, 218,000 Profit for Company X: $1,946, 000 Company X Low Price Profit for Company Y: $1,946, 000 Profit for Company X: $16, 218,000 Profit for Company Y: $6,487,000 Profit for Company X: $6,487,000
- A study of ethanol as a transportation fuel reveals that the competitive equilibrium is expected to be at a price of $4 per gallon and a consumption rate of 100 million gallons/day. For a production rate of 10 million gallons/day, the marginal cost is found to be $1 per gallon. Also, a a price of $10 per gallon the demand is 10 million gallons/day. Answer the following questions for this system. 1. Determine the equations for the demand and marginal cost lines. 2. Calculate the consumer and producer surplus for the market equilibrium. 3. It was discovered later that the above information ignored a government subsidy of 50 cents per gallon. How will the demand and marginal cost lines, and the competitive equilibrium, change if this subsidy is removed?3. Suppose there are two firms competing in a market. Both firms have the cost function c(x) =10x/2 while the demand function is given by x(p) = 100 – 0.1p. a. Find the profit maximizing quantity and price if the firms are playing a pricing game.Two firms face the same inverse demand curve: P= 370– q, – 92 . Both firms have the same constant marginal cost: MC = 10. (a) %3D if both firms choose their output levels simultaneously, how much profits and consumer surplus will be earned in equilibrium? (b) Firm 1 is offered the following deal: by paying Z it can either (i) acquire a new technology that lowers its marginal cost to zero or (ii) have to opportunity to produce output before firm 2. Which option would it take and what is the maximum Z it would be willing to pay?