Suppose there are two airlines, A and B, competing for the market of route from New York to Anchorage, Alaska. They offer essentially the same services, and they compete by de- ciding on quantities. The market demand is described by P=800-Q = 800-(QA+QB). Both airlines operate with the same marginal cost function: MCA = 200 + QA, MCB= 200+ QB- (a) What are the equilibrium prices and quantities in this oligopoly case?

Suppose there are two airlines, A and B, competing for the market of route from New York to Anchorage, Alaska. They offer essentially the same services, and they compete by de- ciding on quantities. The market demand is described by P=800-Q = 800-(QA+QB). Both airlines operate with the same marginal cost function: MCA = 200 + QA, MCB= 200+ QB- (a) What are the equilibrium prices and quantities in this oligopoly case?

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

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

See similar textbooks

Similar questions

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 $150. Answer the following questions: Determine each firm’s reaction curve and graph it. How many paving jobs will each firm produce in Cournot equilibrium? What will the market price of a pave job be? How much profit does each firm earn?
Ticket Price, Cost ($) 10 8 00 D₁ = Dx+DA MC = ATC MRT 20 28 38 10 0 Adult Tickets DK 6 4 MC = ATC MRK Children's Tickets 20 20 1. The Figure above describes demand and cost conditions facing the Salinas Cinema-Plex. Note that marginal costs are constant ($). The demand for Cinema-Plex movie tickets by adult patrons is given by DA and by child patrons Dk. a) Calculate total revenue from ticket sales IF the Cinema-Plex did NOT practice 3rd degree price discrimination, but rather charged a single price to adult and child patrons. b) Calculate the total number of tickets sold if the Cinema-Plex DID practice 3rd degree price discrimination. c) Calculate the change in consumer surplus (CS) received by adult patrons if the Cinema-Plex shifted from a single price to a 3rd degree price discrimination regime. d) How much (economic) profit does the Cinema-Plex stand to gain by engaging in 3rd degree price discrimination?
An Australian firm and a US firm produce a homogeneous good that is sold only in Japan. The marginal cost of producing the good is constant and equal to 30 in both countries. The demand curve for the good in Japan is: P = 120-Q where Q = QA +QUS represents the sum of the quantities. produced by the Australian and the US firms, respectively. (b) Assume the Australian firm can commit to an output before the US firm. Solve for the Stackelberg Equilibrium price, sales and profits of each firm in Japan. Price profit AUS2 ,output_US2 profit_US2 output_AUS2
Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Below is the demand schedule for the market of gasoline. Assume that the cost of producing gasoline is 3 per gallon (AC=3, FC-D0). Suppose that the two producers collude (split production and profits evenly), what are the joint profits of these two firms? Q demanded (in gallons) 10 12 4 Market price (in dollar) $22 $20 $18 $16 $14 $12 $10 $8 $6 $0 O $27 O None of these options is correct. $55 O $72 O $36 50 00 3)
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.
A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of mining diamonds is constant at $1,000 per diamond, and the demand for diamonds is described by the following schedule: Price ($) Quantity (diamonds) 8000 5000 7000 6000 6000 7000 5000 8000 4000 9000 3000 10000 2000 11000 1000 12000 a) If there were many suppliers of diamonds, what would be the price and quantity? b) If there were only one supplier of diamonds, what would be the price and quantity? c) If Russia and South Africa formed a cartel, what would be the price and quantity? If the countries split the market evenly, what would be South Africa’s production and profit? What would happen to South Africa’s profit if it increased its production by 1,000 while Russia stuck to the cartel agreement? d) Use your answers to part (c) to explain why cartel agreements are often not successful.
Question 2: A market is contested by two firms, A and B, who compete in selling a homoge- neous good. Market demand is given by Q = 240 3p, where p is the price of the good. Firm A has constant marginal costs of 20 as long as it produces 100 units or fewer. Every unit above 100 costs 75 to produce. Firm B has the cost function CB = Q3, where QB is the quantity produced by firm B. The firms sequentially choose prices. A is the market leader and chooses its price first; B chooses its price after observing A's price. If they charge the same price each sells half of the demand at that price. The firms cannot turn away customers. What is the equilibrium price in this industry?
Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Below is the demand schedule for the market of gasoline. Assume that the cost of producing gasoline is zero per gallon (AC-D0, FC-0). Suppose that the two producers collude (split production and profits evenly), what are the profits of each firm? Q demanded (in gallons) 4 6 7 8. 10 Market price (in dollar) $22 $20 $18 $16 $14 $12 $10 $8 $6 $0 $70 $72 O $36 O $76 $64 3. 2. 1,
Consider an electricity market where there are three suppliers, each with constant marginal cost (a reasonable approximation in electricity generation). Firm 1 has a capacity of 200 at MC = 5. Firm 2 has a capacity of 100 at MC = 8. Firm 3 has a capacity of 100 at MC = 10. a. If the three firms are price takers (i.e., behave competitively), what is the industry supply curve? b. Compute the equilibrium price and quantity when the market demand is Q(P) = 1000/p0.s. %3D c. Compute the equilibrium price and quantity when the market demand is Q(P) = 750/p0.5. %3D d. Compute the equilibrium price and quantity when the market demand is Q(P) = 500/P0.5.
Suppose we have two identical fırms A and B, selling identical products. They are the only firms in the market and compete by choosing quantities at the same time. The Market demand curve is given by P=287-Q. The only cost is a constant marginal cost of $13. If Firm A produces a quantity of 60 and Firm B produces a quantity of 33, what is market price? Enter a number only, no $ sign. 194
Suppose you're the manager of Babylon Jazz Bar. And, your bar has both young and adult customers. The demand for a typical adult customer is Q4 = 18– 3P and, for a typical young customers is Q' = 10 – 2P, where Q shows number of drinks and P shows price per drink. The marginal cost of a drink is 2-TL. And, you want to determine an entrance fee & a price per drink that maximize Babylon's profit. a. What will be the fees (entrance & per drink) for adult customers, and number of drinks? b. What will be the fees for young customers, and number of drinks? c. What is the profit of Babylon if there are 100 customers in each group?
Gamma and Zeta are the only two widget manufacturers in the world. Each firm has a cost function given by: C(q) = 10+20q + q^2, where q is number of widgets produced. The market demand for widgets is represented by the inverse demand equation: P = 200 - 2Q where Q = q1 + q2 is total output. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm? Equilibrium quantity for each firm__ price__ profit__ b) It occurs to the managers of Gamma and Zeta that they could do a lot better by colluding. If the two firms were to collude in a symmetric equilibrium, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profit for each firm in this case? Equilibrium quantity for each firm__ price__ profit__ c) What minimum discount factor is required…