Question

Consider a market with only two firms. Demand on this market is given by D(p)= 90...

Consider a market with only two firms. Demand on this market is given by D(p)= 90 - 3p. Initially both firms have the same constant per-unit cost, specifically c1 = c2 = 20 .

(a) What is the Nash equilibrium in this market if firms behave as Bertrand competitors? How much does each firm produce, what price do the firms charge, and what are their profits?

(b) Now suppose that firm 1 acquires a new production technique that lowers its per-unit cost moves to c1 = 15 (the other firm still has c2 = 20 ). What are the equilibrium prices and quantities in this new situation, given that the firms behave as Bertrand competitors? What are their profits? Do consumers benefit from the fact that firm 1 now has a more efficient production technique? Discuss.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider two identical firms competing in a market described by: • (Inverse) Demand: P = 50...
Consider two identical firms competing in a market described by: • (Inverse) Demand: P = 50 − Q , where Q = q1 + q2 • Cost Firm 1: C1 = 20q1 +q1^2 • Cost Firm 2: C2 = 20q2 + q2^2 a. (1 point) What is firm 1’s marginal cost? Firm 2’s marginal cost? What can you observe about these two firms? b.(2 points) What are the equilibrium price (P∗), production quantities (q∗1,q∗2), and profits(π∗1,π∗2), if these firms are...
Consider two identical firms competing in a market described by: • (Inverse) Demand: P = 50...
Consider two identical firms competing in a market described by: • (Inverse) Demand: P = 50 − Q , where Q = q1 + q2 • Cost Firm 1: C1 = 20q1 +q1^2 • Cost Firm 2: C2 = 20q2 + q2^2 a. (1 point) What is firm 1’s marginal cost? Firm 2’s marginal cost? What can you observe about these two firms? b.(2 points) What are the equilibrium price (P∗), production quantities (q∗1,q∗2), and profits(π∗1,π∗2), if these firms are...
Suppose that market demand for golf balls is described by Q = 90 − 3P, where...
Suppose that market demand for golf balls is described by Q = 90 − 3P, where Q is measured in kilos of balls. There are two firms that supply the market. Firm 1 can produce a kilo of balls at a constant unit cost of $15 whereas firm 2 has a constant unit cost equal to $10. a)Suppose the firms compete in quantities. How much does each firm sell in a Cournot equilibrium? What is the market price and what...
Two firms compete in a Bertrand setting for homogeneous products. The market demand curve is given...
Two firms compete in a Bertrand setting for homogeneous products. The market demand curve is given by Q = 100 – P, where Q is quantity demanded and P is price. The cost function for firm 1 is given by C(Q) = 10Q and the cost function for firm 2 is given by C(Q) = 4Q. What is the Nash-Equilibrium price? What are the profits for each firm in equilibrium?
Consider a market with two identical firms. The market demand is P = 26 – 2Q,...
Consider a market with two identical firms. The market demand is P = 26 – 2Q, where Q = q1 + q2. MC1 = MC2 = 2. 1. Solve for output and price with collusion. 2. Solve for the Cournot-Nash equilibrium. 3. Now assume this market has a Stackelberg leader, Firm 1. Solve for the quantity, price, and profit for each firm. 4. Assume there is no product differentiation and the firms follow a Bertrand pricing model. Solve for the...
The market demand is given by P = 90 − 2Q. There are only two firms...
The market demand is given by P = 90 − 2Q. There are only two firms producing this good. Hence the quantity supplied in the market is the sum of each firm’s quantity supplied (that is, Q = qA + qB), where qj is the firm j 0 s quantity supplied). Firm A has zero marginal cost, while Firm B has the marginal cost of $30. Each firm has no fixed cost, and simultaneously chooses how many units to produce....
Suppose that two firms A and B sell water in a market. The market demand function...
Suppose that two firms A and B sell water in a market. The market demand function can be expressed as P = 120 – Q, where Q = qA+qB. For each producer, the marginal cost =average total cost of producing each unit = $30. If the firms behave as Cournot competitors, in the Nash equilibrium, the industry price of water will be a. $60 b. $20 c. $30
Suppose that two firms compete in the same market producing homogenous products with the following inverse...
Suppose that two firms compete in the same market producing homogenous products with the following inverse demand function: P=1,000-(Q1+Q2) The cost function of each firm is given by: C1=4Q1 C2=4Q2 Suppose that the two firms engage in Bertrand price competition. What price should firm 1 set in equilibrium? What price should firm 2 set? What are the profits for each firm in equilibrium? What is the total market output? Suppose that the two firms collude in quantity, i.e., acting together...
Consider a Stackleberg game of quantity competition between two firms. Firm 1 is the leader and...
Consider a Stackleberg game of quantity competition between two firms. Firm 1 is the leader and Firm 2is the follower. Market demand is described by the inverse demand function P=1000-4Q. Each firm has a constant unit cost of production equal to 20. Solve for the Nash equilibrium outcome in quantities in this sequential game. What is the equilibrium price? What are the profits for each firm? Suppose that firm 2’s unit cost of production is c < 20. Explain and...
Suppose two identical firms are in Bertrand Competition with the following market demand and marginal costs...
Suppose two identical firms are in Bertrand Competition with the following market demand and marginal costs P = 124 − 6Q MC = 4 1 Assuming both firms collude what would the price, quantities and (one period) profits be? 2 Assume both firms are colluding to raise the equilibrium price. If one firm defected from (i.e. broke) their agreement how much would they earn? (Assume the game was played once.) 3 Now assume the game is infinitely repeated and the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT