3) Suppose there are two firms 1 and 2 producing a homogeneous product. The market demand function is 12-p%-DQ where Q is the marketdemand. There is price competition between firm 1 and 2. The cost function of firm 1 is c(q1) = q . The cost function of firm 2 is c(q2) = 2q;. There isdecreasing returns to scale. The consumers buy from the firm charging the lowest price. If the price of both the firms is same then the demand is equallyshared. The firms have to supply the amount demanded at the price set by firms. Find the set of pure strategy Nash equilibrium.%3DEach price in the range p E [4, 7.2] is a pure strategy Nash equilibrium.Each price in the range p E [6, 7.2] is a pure strategy Nash equilibrium.Each price in the range p E [6, 9] is a pure strategy Nash equilibrium.Each price in the range p E [4, 6] is a pure strategy Nash equilibrium.

Market Demand : Q = 12 - p => p = 12 - Q Where , Q = q1 + q2 Cost function of firm 1 = q12 Cost…

Answered: 3) Suppose there are two firms 1 and 2…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose market inverse demand function is p(y)=100-Yt where Yt is total production in the market. Assume that there are two firms with following marginal cost MC(firm 1)=Y1 MC(firm 2)=2*Y2+10 Assume that Yt=Y1+Y2 Set up profit function for both firms. What is the best response function of each firm by taking into account action of other firm? What output level is going to be produced by each firm in equilibrium? Assume that Firm 1 is leader in the market and going to act first. What will be the best response and output level of firm 2. What is difference between previous and new situation? Why? What is difference between Bertrand and previous competition? How would you like to find equilibrium price?
2. A firm has a cost function of C = 1000+20Q + 1/10Q2 and has a demand function as shown in the graph below: 100 90 80 70 70 60 60 50 40 30 20 10 0 10 20 30 40 50 60 70 80 90 100 Quantity (Q) -P (demand) a) Estimate the firm's demand function. You may assume that the slope is a whole number, and the intercept is a multiple of 10. (1 mark) b) Find the firm's revenue function. You do not need to draw it. (2 marks) c) Find the marginal revenue function, and draw it on a copy of the graph. (3 marks) d) Find and draw the marginal cost function. (3 marks) e) Use your results from parts (c) and (d) to find the profit-maximising level of output. (3 marks) f) Find the market price at this level of output. (2 marks)
4. A vertically integrated automobile company has an upstream engine division and a downstream assembly division. The demand for the company's cars is given by Q = 20-P. Each car requires one engine. The downstream division's total cost of assembling cars is TCD(Q) = 4Q. The upstream division's total cost of producing engines is TCv (Q) = Q². (a) Suppose that there is no outside market for engines. What is the price and quantity of cars produced by the company? (b) Suppose that there is no outside market for engines. What should be the transfer price for engines? [Hint: the transfer price of an engine should equal the marginal cost of engine production at the optimal quantity.] (c) Suppose that there is a competitive outside market in which the price of an engine is 12. What is the price and quantity of cars produced by the company? (d) Suppose that there is a competitive outside market in which the price of an engine is 12. What is the quantity of engines that the company buys or…
Suppose that each firm in a competitive pizza market has the following identical cost: Total cost: TC=25+1.5Q2 The market demand function for the pizza market in the above question 2(a) is: Q= 120-P, where P is the price and Q is the total quantity of the pizza. Currently, there are 12 firms in the market. i. Formulate the equation or level of fixed cost, variable cost, marginal cost, average variable cost (AVC) and average total cost (ATC) for each firm. ii. Formulate each firm’s supply function based on the cost information prior to innovation and determine the market supply function in the short run. The total number of firms in the market is assumed to be fixed. iii. Calculate the price and quantity of pizza in the market and the quantity produced by each firm while the market is at the short-run equilibrium. Use a diagram to illustrate this short-run equilibrium and calculate each firm’s profit or loss. Discuss whether each firm has an incentive to leave or stay in the market.…
Assume a competitive firm faces a market price of $100, a cost curve of: C = 0.25q + 50q + 1,600 and a marginal cost curve of: MC = 0.50g + 50. The firm's profit maximizing output level is 100.00 units, the profit per unit is $9.00, and total profit is: $900.00. However, if the firm wanted to maximize the profit per unit, how much would it produce? It would produce units. (round your answer to two decimal places) If the firm produced this output level, what would be the profit? Its profit would be S. (round your answer to the nearest penny)
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Suppose there are in total 3 firms in the market. Firm 1 decides its output first, then Firm 2 and Firm 3 decide their outputs simultaneously. The inverse demand function is p = 14 – 3q, where q = q1 + q2 + 43, and each firm's cost function is c(q.) = 2q?. What is the quantity that Firm 1 produces? Round your answer to 2 decimal points. Answer: The correct answer is: 1.04
a) Find the long run equilibrium price. Find the minimum efficient scale of the typical firm. Find the typical firm’s average cost when it operates at minimum efficient scale. In the long run, what price will prevail in this market? In words, clearly justify your answer. Suppose demand is QD = 3,200 – 100P. (b) Explain why you expect the number of firms in this market to be fifty-five. In this market, what is the short run supply function of the typical firm? What is the short run market supply function? Suppose the local government introduced a $90 licensing fee that raised the fixed cost from $160 to $250. c) Would the introduction of the licensing fee affect the short run equilibrium price or quantity? Justify your answer? Clearly explain why you expect that in the long run fewer larger firms will operate in this market. After the introduction of the licensing fee, what is the new long run equilibrium price? How many firms will survive in this market?
• Consider the following market of a homogeneous product, which has de- mand function: Q 105 P. Each firm has a total cost function: C (qi) = 5qi. = 1. Let n = {1,2,...} be the number of firms. For n ≥ 2 the firm engage in Cournot competition. Let q; be the output of firm i, for i = 1, . . ., n, and Q = ½ q₁ be the total output. Write down the inverse demand function for the market. Calculate each firm's marginal cost MC₁. Define each firm's best response function. Solve for the Nash equilibrium point, and calculate the P-MCi market price P, output Q, and each firm's Lerner index L₁ = P Show how these results change with parameter n and explain their economics meaning. dqi Q 2. Use your results from part 1 to show for n → ∞, the market share of firm i: s₁ = 2 qi → 0, and firm i's marginal revenue: MR₁ = d(P(Q)qi) → P(Q), and thus firm i tends to behave like a price taker, and P(Q) → MC. Consequently, for n → ∞, the market tends to be perfectly competitive. Use this result to calculate…
All ims in a competitive industry have identical cost functions c(y)=y2+25 for y>0 and c(0) = 0. The demand function for this industry is given by D(p) = 90-p. 1. If this industry is served by 8 firms in the short run, the equilibrium price in the short run will be: 2. If the market price is p= 18, each firm will supply an output of 3. If the market price is p = 18, each firm will earn a profit of %3D 4. In the long run, firms are free to enter and exit the market. The equilibrium price in the long run will be 5. In long-run industry equilibrium, each firm will supply an output of 6. In long-run industry equilibrium, the number of firms in the industry will be:
Suppose that each firm in a competitive industry has the following costs: Total cost: TC = 50 + 1/2q2 Marginal cost: MC = q where q is an individual firm's quantity produced. The market demand curve for this product is Demand: QD where P is the price and Q is the total quantity of the good. Currently, there are 9 firms in the market. = 120 – P а. What is each firm’s fixed cost? What is its variable cost? Give the equation for average total cost. b. Graph average-total-cost curve and the marginal-cost curve for q from 5 to 15. At what quantity is average-total-cost curve at its minimum? What is marginal cost and average total cost at that quantity? с. Give the equation for each firm's supply curve. d. Give the equation for the market supply curve for the short run in which the number of firms is fixed. е. What is the equilibrium price and quantity for this market in the short run? In this equilibrium, how much does each firm produce? Calculate each firm's profit or ^ loss. Is there…
Suppose that the manager of a firm operating in a competitive market has estimated the firm's average variable costs function to be AVC = 10 – 0.03q + 0.00005q? TC = 600 + 10q – 0.03q² + 0.00005q³ The MC curve in this setting is МC %3D 10 — 0.06q + 0.00015q? Suppose the market price for output is $10 per unit. What is the profit maximizing level of output? (Start q at 0, but increase it by 50 each step. Get q at least past 600. Also, be sure to pass though every step of the maximization flow chart to answer all questions.) What is the profit per unit of output? What is the total profit of this firm? Suppose the price drops to $7 per unit what is the profit maximizing level of output? (This is not a nice round number. So, look closely.) What is the profit per unit of output? What is the firms total profit? Should the firm continue to operate?

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