Two firms compete in selling homogeneous goods. They choose their output levels q1 and q2 simultaneously and face demand curve P=80-6Q, where Q=q1+q2. The total cost function of firm 1 is C1=8q1 and the total cost function of firm 2 is
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- a) Suppose that the two firms engage in Cournot competition. Find the equilibrium price PNE in the industry, the equilibrium outputs QANE and QBNE, as well as the profits πANE and πBNE, for each firm. b) Suppose the marginal cost for firm B increases from $20 to $140, while everything else remains unchanged. Find the new equilibrium price PNE in the industry, the new equilibrium outputs QANE and QBNE, as well as the new profits πANE and πBNE for each firm. c) Suppose that, in addition to the marginal cost increase from $20 to $140 from sub question b), firm B also has a fixed cost of $2500, out of which $2100 may be recouped if it shuts down; everything else remains unchanged. In this case, what will firm B’s optimal output be? (Justify your answer.) What will firm A’s profit be?usiness EconomicsQ&A LibraryTwo firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB (Note: qA = Firm A Output; qB = Firm B Output) they must produce since they are the only two firms in the industry that manufacture this product. Their marginal cost (MC) is equal to their average cost (AC) and it is constant at MC = AC = X, for both firms. Market demand is given as Q = Y – 2P (where P = price and Q = quantity). Select any value for X between [21 – 69] and any value for Y between [501 – 999]. Using this information, calculate the Industry Price, Industry Output, Industry Profit, Consumer Surplus and Deadweight Loss under each of the following models: (a) Cournot Model Two firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB (Note: qA = Firm A Output; qB = Firm B Output) they must produce since they are the only two firms in…wo firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB (Note: qA = Firm A Output; qB = Firm B Output) they must produce since they are the only two firms in the industry that manufacture this product. Their marginal cost (MC) is equal to their average cost (AC) and it is constant at MC = AC = X, for both firms. Market demand is given as Q = Y – 2P (where P = price and Q = quantity). Select any value for X between [21 – 69] and any value for Y between [501 – 999]. Using this information, calculate the Industry Price, Industry Output, Industry Profit, Consumer Surplus and Deadweight Loss under each of the following models: (a) Cournot Model error_outlineHomework solutions you need when you need them. Subscribe now.arrow_forward Question Two firms A and B produce an identical product (Note: Industry Output = Q). The firms have to decide how much output qA and qB (Note: qA =…
- 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?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?Mavi and Diesel both make basic blue jeans. The demand curves for the two firms are given by Qm=135,000−3000Pm+1200Pd Qd=154,000−4000Pd+1000Pw suppose it is a price equilibrium for Mavi to set a price of $30 per pair of jeans and Diesel to set a price of $25. What is marginal cost for Mavi What is marginal cost for Diesel
- Suppose that there are two firms in an industry and they face market demand y=400-0.5p where y=y1+y2 . The total cost functions of the firms are C1(y1)= 40y1 and C2(y2)= 2y22. a) Assume initially that the firms enter into Cournot competition. Calculate the equilibrium market price and each firm’s equilibrium output. That is, find y1c, y2sand pc.b) Calculate the equilibrium market price and each firm’s equilibrium output assuming that firm 2 is the Stackelberg leader and firm 1 is the follower. That is, find y1s, y2sand ps.Suppose two firms producing identical products compete in prices. If demand can be written as Q = a - bP and each firm has constant marginal cost c, what would be firm 2's best response to firm 1's price pi in the below figure: Firm 2's Profit P2 Pı (a+bc)/2b Pi Firm 2's Price Select one: O a. none of the other answers O b. P2 = c O. P2 = P1 O d. P2 = P1 - E O e. P2 = (a+bc)/2bTwo Cournot competitors face inverse demand p = 50-Q, where Q = 9₁ +92 is the total output of firms 1 and 2. Both firms have marginal cost of 2. What are the equilibrium output levels q₁ and 92? 16 and 16 25 and 25 20 and 9 36 and 3
- 5. N - Σ Consider a Cournot model in which N firms compete with each other by setting quantities. The market inverse demand function is P = a i=1 qi, where a > 0 and q; is the quantity of firm i. Firm i's cost function is quadratic: q, where c₂ > 0. (a) Suppose N 2. Find the Nash equilibrium. Show which firm produces more in the equilibrium and explain your result. (b) = Suppose N≥ 2 and ci = c for all i. Find the Nash equilibrium. Show whether the firms produce more or less than the constant marginal cost case where the cost function is cqi, with a>c>0.2. An industry contains two firms and the inverse demand function for the firms' output is P-180-30, where Q is the total output Suppose that firm I's cost and marginal cost functions are C(q)- 30q; and MC(q)-30, while firm 2's cost and marginal cost functions are C(q)-q² and MC(q)-2q2 a. Determine each firm's Nash equilibrium output. b. Determine each firm's profit at the Nash equilibrium output.2) Assume that there are 2 firms producing an identical product. Both firms have the same total cost function TC(q) =q2. The inverse demand function for the firms' output is p=120 Q, where Q is the total output and p is price. 1. What are the equilibrium price, output and profits of each firm if they are competing with each other? (Hint: Consider the equilibrium in a Cournot game.) 2. What happens if they form a cartel? Calculate the equilibrium price, output, and profits for the cartel? 3. If a single firm cheated, what would its output and profits be, assuming the other firm maintains the cartel price? Calculate the new outputs and profits for bath firms: 4. Discuss why it is hard to enforce a cartel. Explain using words. DO NOT do any calculations. DO NOT draw any graphs. 5. What can the cartel members do to enforce the cartel agreement? Propose a method. Describe the method using words. DO NOT do any calculations. DO NOT draw any graphs.
