Question

2. Suppose one Japanese firm and one American firm dominate the US market of widgets. They share the same cost structure: TC = 250 + 40q. The only demand for widgets is in the US and is p = 100 – Q.

(a) (16 points) If these two firms compete in quantity at the same time, what is the Cournot equilibrium output, price, profit level by each firm?

(b) (12 points) Suppose the American firm acquires the Japanese firm and therefore becomes a monopoly in this market. Calculate the monopoly’s output, price, and Lerner Index. How much is the deadweight loss due to monopoly behavior?

Answer #1

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2. (10+10+6) Suppose you have the
following data:
Market demand is
P =
200 – 5Q
Total Cost Function is
TC = 150 + 6Q+ 2Q2
a) If this market has only one firm
(monopoly), compute the quantity, price and profit of this firm.
Compute PS.
b) If this market had many firms
(Perfect Competition), compute competitive market output, price,
and profit. Compute TS.
c). Illustrate your answers in (a) and
(b) on the same graph. Your graph...

2. (10+10+6) Suppose you have the
following data:
Market demand is
P =
200 – 5Q
Total Cost Function is
TC = 150 + 6Q+ 2Q2
a) If this market has only one firm
(monopoly), compute the quantity, price and profit of this firm.
Compute PS.
b) If this market had many firms
(Perfect Competition), compute competitive market output, price,
and profit. Compute TS.
c). Illustrate your answers in (a) and
(b) on the same graph. Your graph...

2. The market for a good has an inverse demand curve of p = 40 –
Q and the costs of producing the good are defined by the following
total cost function: TC = 100 + 1.5Q2.
a. If this good is produced in a monopoly market, provide a
graph of the demand curve, marginal revenue curve and marginal cost
curve. Then calculate the equilibrium output and price .
b. Calculate the price elasticity of demand at the equilibrium
price...

2. The market for a good has an inverse demand curve of p = 40 –
Q and the costs of producing the good are defined by the following
total cost function: TC = 100 + 1.5Q2.
a. If this good is produced in a monopoly market, provide a
graph of the demand curve, marginal revenue curve and marginal cost
curve. Then calculate the equilibrium output and price.
b. Calculate the price elasticity of demand at the equilibrium
price and...

Suppose two firms compete in selling identical widgets. They
choose their output levels Q1 and Q2 simultaneously and face the
demand curve. P= 30 – Q, where Q = Q1 + Q2. Both firms have a
marginal cost of $9.
1. Suppose that the two firms compete by
simultaneously setting PRICES? What will the price be? How much
will each firm produce? What will each firm’s profits be?
2. Now, continue with the price-setting
assumption in (1), and assuming the...

Suppose there are two firms in a market who each simultaneously
choose a quantity. Firm 1’s quantity is q1, and firm 2’s
quantity is q2. Therefore the market quantity is Q =
q1 + q2. The market demand curve is given by
P = 160 - 2Q. Also, each firm has constant marginal cost equal to
10. There are no fixed costs.
The marginal revenue of the two firms are given by:
MR1 = 160 – 4q1 – 2q2
MR2...

Suppose there are two firms in the market. Let Q1 be the output
of the first firm and Q2 be the output of the second. Both firms
have the same marginal costs: MC1 = MC2 = $5 and zero fixed costs.
The market demand curve is P = 53 − Q.
(a) (6 points) Suppose (as in the Cournot model) that each firm
chooses its profit-maximizing level of output assuming that its
competitor’s output is fixed. Find each firm’s reaction...

2. The market for a good has an inverse demand curve of p = 40 –
Q and the costs of producing the good are defined by the following
total cost function: TC = 100 + 1.5Q2.
a. If this good is produced in a monopoly market, provide a
graph of the demand curve, marginal revenue curve and marginal cost
curve. Then calculate the equilibrium output and price
. b. Calculate the price elasticity of demand at the equilibrium
price...

The market demand for a good is represented by P = 400 ?20Q.
Firms are symmetric with cost functions C = 30q. Assume the firms
compete in a Cournot Oligopoly (i.e., simultaneous choices of
quantity).
Cooperation: Consider the same demand and cost functions from
above, focusing on the case where there are two firms in the
market. Suppose the two duopolists agree to a cartel in which they
each produce half of the monopoly output. Show that this cannot be...

2) (Merger with cost synergies) Suppose the demand for widgets
is p(Q) = 100 – Q. Initially, there are two firms producing
widgets, each with cost function C(q) = 40q, and these firms engage
in Cournot quantity competition. Now suppose these two firms
propose to merge so as to reduce their marginal costs by 0<?. In
other words, after the merger there will be a monopolist with cost
function CM(q) = (40 – ?)q.
a) For what values of ?...

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