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Cournot problem 4 firms (A,B,C,D) globally that make a product with many customers. They set production...

Cournot problem

4 firms (A,B,C,D) globally that make a product with many customers. They set production levels and then let the market determine market clearing price. Firms A,B,C have same cost structure and production process but D has different production process and cost structure. One year ago, firms ABC conspired to exclude D from the market and D lost all customers. B has total variable costs of $30,000 for producing 15,000 units and $40,000 for producing 20,000 units. Price of product has been constant at $6 per unit in the last year and total industry production is 90,000 units last year. ABC had same market shares as well. Before D got kicked out of the market, the market shares were 25% each for ABCD. What is the consumer damage from D being kicked out of the market and what is the preliminary damage estimate.

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Answer #1

Answer:

Cost structure of A, B,C

Variable cost = 30000 $ for 15000 Units

Price of product =$6

Industry prodction =90000

ABCD Market share= 90000/4=22500

Consumer damage after D Expelled =90000 Units-22500 Units

=67500 Units short supply

Preliminary damage:-

Preliminary damage will be the price hike since after expelling D the quantity production is less and hence demand is as before and due to this prices will rise to the label equiblirium . The prices from 6 will rise to approx 10 $

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