Question

The geegaw industry consists of two Cournot competitors producing an identical product. The inverse demand equation is P=591-4Q.

The total cost equations of the two firms are:

TC_1=15Q_1

TC_2=31Q_2.

a. Determine the total revenue equation for each firm.

b. What is the reaction function of each firm?

c. What is the Cournot-Nash equilibrium level of output?

d. What is the market-determined price of geegaws?

e. Calculate each firm’s total profit.

Answer #1

Answer.

Consider an industry consisting of two firms producing an
identical product. The inverse market demand equation is P = 100 −
2Q. The total cost equations for firms 1 and 2 are TC1 = 4Q1 and
TC2 = 4Q2, respectively. Suppose that the two firms are Cournot
rivals. Firm 2 will earn a profit of:
$512.
$732.
$836.
$1,014.
None of the above.

SCENARIO 3: Consider an industry consisting of two firms
producing an identical product. The inverse market demand equation
is P = 100 − 2Q. The total cost equations for firms 1 and 2 are TC1
= 4Q1 and TC2 = 4Q2, respectively.
Refer to SCENARIO 3. Suppose that the two firms are Cournot
rivals. The equilibrium level
of output for firm 1 is:
a. 8.
b. 16.
c. 24.
d. 32.
e. None of the above.

Consider an industry consisting of two firms producing an
identical product. The inverse market demand equation is P = 100 −
2Q. The total cost equations for firms 1 and 2 are TC1 = 4Q1 and
TC2 = 4Q2, respectively.
Firm 1 is the Stackelberg leader and firm 2 is the Stackelberg
follower. The output of the Stackelberg follower is:
6.
12.
24.
48.
None of the above.

Consider an industry consisting of two firms producing
an identical product. The inverse market demand equation is P = 100
− 2Q. The total cost equations for firms 1 and 2 are TC1 = 4Q1 and
TC2 = 4Q2, respectively. Firm 1 is the Stackelberg leader and firm
2 is the Stackelberg follower. The profit of the Stackelberg
follower is:
$864.
$576.
$432.
$288.
$1,152.

SCENARIO 3: Consider an industry consisting of two firms
producing an identical product. The inverse market demand equation
is P = 100 − 2Q. The total cost equations for firms 1 and 2 are TC1
= 4Q1 and TC2 = 4Q2, respectively.
9. Refer to SCENARIO 3. Suppose that the two firms are Cournot
rivals. Firm 1’s reaction function is:
a. Q1 = 12 − Q2.
b. Q1 = 12 − 0.25Q2.
c. Q1 = 24 − 0.5Q2.
d. Q1...

SCENARIO 3: Consider an industry consisting of two firms
producing an identical product. The inverse market demand equation
is P = 100 − 2Q. The total cost equations for firms 1 and 2 are TC1
= 4Q1 and TC2 = 4Q2, respectively.
Refer to SCENARIO 3. Suppose that the two firms are Bertrand
rivals. The equilibrium level
of output for firm 1 is:
a. 8.
b. 10.
c. 12.
d. 24.
e. None of the above.

SCENARIO 3: Consider an industry consisting of two firms
producing an identical product. The inverse
market demand equation is P = 100 − 2Q. The total cost equations
for firms 1 and 2 are TC1 = 4Q1 and
TC2 = 4Q2, respectively.
Refer to SCENARIO 3. Suppose that the two firms are Cournot
rivals. Firm 1 will earn a
profit of:
a. $512.
b. $732.
c. $836.
d. $1,014.
e. None of the above.

A homogenous good industry consists of two identical firms (firm
1 and firm 2). Both firms have a constant average total cost and
marginal cost of $4 per unit. The demand curve is given by P = 10 –
Q. Suppose the two firms choose their quantities simultaneously as
in the Cournot model.
(1) Find and plot each firm’s best-response curve. (Be sure to
clearly label your curves, axes and intercepts.)
(2) Find each firm’s quantity and profit in the...

Suppose that an industry consists of two firms. These
firms are Bertrand competitors. The inverse market demand equation
for the output of the industry is P = 33 − 5Q, where Q is measured
in thousands of units. Each firm has a marginal cost of $3. Based
on this information we can conclude that:
P = $1.5 and each firm will sell 6,300
units.
P = $5 and each firm will sell 2,800
units.
None of the options.
P =...

Two firms, A and B, are Cournot competitors facing the inverse
market demand P = 5 - 0.001Q, where Q = qA +
qB. Each firm has the same total cost function
Ci = 2qi , i = A, B.
a. (8) Write out the profit function of firm A, then derive the
best response functions for A and B. (You only need to derive one
best response function because A and B are identical.) Carefully
graph the best response...

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