10.14. HERFINDAHL INDEX BOUNDS. Suppose you only know the value of the market shares for the largest m firms in a given industry. While you do not possess information to compute the Herfindahl index, you can find a lower sufficient and an upper bound for its values. How?
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If you only have information on the market shares of the largest m firms in a given industry and want to obtain a lower and an upper bound for the Herfindahl index, there are two methods you can use.
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- C2) Company A is the only supplier of glass in Big Apple City used for tall buildings’ exteriors. Its marginal cost of production is cA=1, and it has no other production costs. The demand for such glass in Big Apple city is QD=2-P. Company B in Jersey City produces the same glass and is considering whether to expand to Big Apple city. If it enters, it needs to get a permit to allow it to be a supplier in the Big-Apple city at a cost of L=0.5, which does not vary with quantity of output, and its marginal cost of production is cB=0.5. If it expands to the Big-Apple city, companies A and B both supply to the market, and the market price P satisfies QA+QB=2-P, where QA is company A’s production level and QB is company B’s. a) If company B expands to the Big-Apple city, what is the resulting price in a Nash equilibrium? b) Company B hires a consulting company to advise whether it should expand to the Big-Apple city. If you’re running the consulting company, what is your advice? Explain…C2) Company A is the only supplier of glass in Big Apple City used for tall buildings’ exteriors. Its marginal cost of production is cA=1, and it has no other production costs. The demand for such glass in Big Apple city is QD=2-P. Company B in Jersey City produces the same glass and is considering whether to expand to Big Apple city. If it enters, it needs to get a permit to allow it to be a supplier in the Big-Apple city at a cost of L=0.5, which does not vary with quantity of output, and its marginal cost of production is cB=0.5. If it expands to the Big-Apple city, companies A and B both supply to the market, and the market price P satisfies QA+QB=2-P, where QA is company A’s production level and QB is company B’s. a) If company B expands to the Big-Apple city, what is the resulting price in a Nash equilibrium? b) Company B hires a consulting company to advise whether it should expand to the Big-Apple city. If you’re running the consulting company, what is your advice? Explain…Please no written by hand solutions 2. Mr Gieves and Mr Hawkes produce items of clothing. The market demand for clothes is y = 13-p with y = y1+y2 and p denoting the market price of clothes. Mr Gieves and Mr Hawkes compete by simultaneously choosing the quantity of clothes to send to the market, and their cost functions are C1 (y1) = y₁ and C₂(y2) = y2 respectively. (a) Set up the profit functions, and derive the reaction functions. (b) Find the Cournot equilibrium of the market. Indicate what the market price, individual outputs and profits are.
- COURSE: MICROECONOMICS - Cournot Model:In the market for a given good there are only 2 firms satisfying the demand, and their respective total cost functions respond to the form: CTi = 10Qi + 5 and the demand is estimated to be: P = 31 - QIf the decision variable for both firms is that the quantity they will produce and realize will be decided simultaneously it is asked to:(a) calculate the profit and reaction function of each firmb) graph market equilibriumc) calculate the profits that both companies will obtain in equilibriumQuestion Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) Now consider two cases (i) Company is effectively able to price discriminate in the two markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging the same price in the two markets what are the profit maximizing levels of price, output, and the total profits? c. Analyze, with graphs, the two alternative pricing strategies…There are two ma jor producers of corncob pipes in the world, both located in Herman, Missouri. Suppose that the inverse demand function for comcob pipes is described by p = 120 4q where q is total industry output and suppose that marginal costs are zero. What is the Cournot reaction function of firm 1 to the output, q2, of firm 2? (a) 120-4q22
- 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?Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) Required. Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market.? 2. Now consider two cases: (i) Company is effectively able to price discriminate in the two markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit…In the packaged energy drink industry, there are only two companies that have the same relative strength in the market, namely “Pocary” and “Ion-1000”. It is known that the demand function in the market for this industry is as follows: Q = 1000 - 0.1P. Where Q in the market is supplied by these 2 companies. It is known that the total cost of the company is TC = 2q2 while for Ion-1000 is TC = 2.5q2 a. If these 2 companies collude, what is the price and quantity offered in the market at equilibrium, and calculate the profit of each company? b. If these 2 companies compete, look for the best respond function of each company, and what is the price and quantity offered in the market at equilibrium, and calculate the profit of each company? c. Make it in the game theory form of the two strategies "Collusion" and "Compete" and look for "Nash Equilibrium" in just one game? (Note, if one is a collusion strategy, then the quantity produced collusion strategy is the same as the calculation result…
- A computer hardware firm sells both laptop computers and printers. Through the magic of focus groups, their pricing team determines that they have an equal number of three types of customers, and that these customers' reservation prices are as illustrated in the figure below. Bundle Laptop $700 $950 $600 Printer Customer A $100 $150 $50 $800 $1,100 $650 Customer B Customer C Assume for simplicity the marginal cost of production for laptops and printers is zero. If the firm were to charge only individual prices (not use the bundle price), what prices should it set for its laptops and printers to maximize profit? Assuming for simplicity that the firm has only one customers of each type, how much does it earn in total? To maximize profit using individual prices, the firm should charge a price for laptops of and a price for printers of p=: (Enter your responses as whole numbers.)Attempt all questions. Q1. a) A local Pepsi company has total costs of production given by the equation TC-500+10q+Sq2. This implies that the firm's marginal cost is given by the equation MC 10+10q. The market demand for cold drink is given by the equation QD-105 (1/2)*P. Write the equations showing the company's average total cost and average variable cost and average fixed cost, each as a function of q. Show the firm's MC, ATC and AVC on one graph. What is the breakeven price and breakeven quantity for this firm in the short run? What is the shutdown price and shutdown quantity for this firm in the short run? If the market price of the output is $50, how many units will this firm produce? iv) Assuming the cold drink industry is perfectly competitive, what output would be produced by the firm in long-run equilibrium? What would be the long-run equilibrium price? i) ii)A6 In Changlun, Kedah, there are two bakers, Abu and Bakar. Their bread taste the same and nobody can tell the difference. Abu has constant marginal costs of RM1 per loaf of bread. Bakar has constant marginal costs of RM2 per loaf. Fixed costs are zero for both of them. The inverse demand function for bread in Changlun is p(q) = 6 – 0.01(qA + qB), where q is the total number of loaves sold per day. Find the reaction function for Abu and Bakar. What is the Cournot Nash equilibrium number of loaves of bread for each baker?