An industry has two firms. Firm 1's cost unction is TC1(q1) = 2q1 + 500 and firm 2's cost function is TC2(q2) = 2q2 + 400. The demand curve for the output of this ndustry is a downward-sloping straight ine. In a Cournot equilibrium, where both
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- 4.5 Show that the long-run equilibrium number of firms is indeterminate when all firms in the industryshare the same constant returns-to-scale technology and face the same factor prices.4.7 Technology for producing q gives rise to the cost function c(q) = aq + bg. The market demand forqisp =a - Bq.(a) If a>0, if b < 0, and if there are J firms in the industry, what is the short-run equilibriummarket price and the output of a representative firm?b) Ifa> 0 and b <0, what is the long-run equilibrium market price and number of firms? Explain.() Ifa>0and b > 0, what is the long-un equilibrium market price and number of firms? Explain.7. A honey farm is located next to an apple orchard and each acts as a competitive firm. Let the number of apples produced be measured by A and the amount of honey produced by H. The cost functions of the two firms are CH (H) = H²/100 and C₁(A)=4-H. The price of honey is £2 and the price of apples is £3. 100 a. If the firms operate independently, what is the equilibrium number of apples and amount of honey produced? Are these amounts the Pareto-efficient? Explain. b. Suppose the two firms merge. What is the profit maximising amount of apples and honey that the merged firm produce? Explain. c. What is the socially optimum amount of honey and apples? Discuss methods to induce the independent firms to produce the socially optimal number of apples and amount of honey. Explain.Mortimer makes picture frames. From the consumers' perspective, his frames are not different from those offered by other sellers. The going market price of a typical frame is $20. Mortimer has determined that his marginal cost of the fifth frame is $17, of the sixth frame is $19, and of the seventh frame is $21. His total variable cost of producing five frames is $96, and his total fixed cost is $60. In this situation, Mortimer should: Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer. a b с d Produce 5 frames Produce 6 frames Produce 7 frames Shut down
- Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR $15, MC-$12. ATC $10, and AVC $8. Based on this information, we can conclude that Multiple Choice Betty's experience will encourage some existing firms in this market to leave Betty's experience will encourage new firms to enter the market. Betty's is in long-run equilibrium Betty's experience will discourage firms from entering the marketThe behaviour of a firm depends on the features of the market in which it sells its product(s) and on its production costs. The following diagrams illustrate the possible short-run equilibrium positions of two firms. Firm A MC AC Po AR=MR Quantity Both firms employ the marginal approach to determine profit in the short-run. However, differ with regards to certain market structure criteria: The number of firms in the market The nature of the good or service sold Ease of entry for new competitors into the market Control that the firm has over price In scenario 7, the possible short-run equilibrium positions of two firms are given. With reference to "Firm A", answer the following question. 9.1 Identify the market structure of Firm A. 9.2 Using the marginal approach to determine profit, is Firm A making a short-run profit or loss? Explain your answer with reference to the provided diagram. OFocus Unil revenue and costConsider an industry where there is perfect competition (with the conventional horizontal long-run market supply curve). Initially, all of the firms are making zero economic profit, then, the price of an important input falls so that firms all make positive economic profit in the short run, but in the long run economic profit returns to zero. Draw this using a two-panel diagram. Draw the representative firm panel on the left-hand-side and the market panel on the right-hand-side. Your diagram must be carefully drawn and properly labelled. Explain why, referring to your diagrams, in the long run profit returns to zero. ( maximum word limit: 150 words)
- Two firms producing identical products may merge due to the existence of Multiple Cholee economies of scope. economies of scale cost complementarities Al of the statemens are conectTwo 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.Suppose there are 1,000 hot pretzel stands operating in New York City. Each stand has the usual U-shaped average-total-cost curve. The market demand curve for pretzels slopes downward and the market for pretzels is in long-run competitive equilibrium. Draw the current equilibrium, using graphs for the entire market and for an individual pretzel stand. Now the city decides to restrict the number of pretzel-stand licenses, reducing the number of stands to only 800. What effect will this action have on the market and on an individual stand that is still operating? Use graphs to illustrate your answer. Suppose that the city decides to charge a license fee for the 800 licenses. How will this affect the number of pretzels sold by an individual stand, and the stand’s profit? The city wants to raise as much revenue as possible and also wants to ensure that 800 pretzel stands remain in the city. By how much should the city increase the license fee? Show the answer on your graph.
- The table below shows the weekly marginal cost (MC) and average total cost (ATC) for Buddies, a purely competitive firm that produces novelty ear buds. Assume the market for novelty ear buds is a competitive market and that the price of ear buds is $6.00 per pair. Buddies Production Costs MC ($) Quantity of Ear Buds 5 10 15 20 25 30 35 40 2.00 2.45 3.55 4.00 5.50 5.98 8.52 pairs ATC ($) 2.00 2.00 2.15 2.50 2.80 3.25 3.64 4.25 Check my work Instructions: In part a, enter your answer as the closest given whole number. In parts b-d, round your answers to two decimal places. a. If Buddies wants to maximize profits, how many pairs of ear buds should it produce each week? b. At the profit-maximizing quantity, what is the total cost of producing ear buds? c. If the market price for ear buds is $6 per pair, and Buddies produces the profit-maximizing quantity of ear buds, what will Buddies profit or loss be per week? d. Now assume the market price is $5.50 per pair, and Buddies produces the…What is the total variable cost in perfectly competetive firms3. Technology for producing q gives rise to the cost function c(q) = aq+ bq². The market demand for q is p = a - Bq. (a) If a > 0, if b 0 and b 0 and b >0, what is the long run equilibrium market price and number of firms? Explain.