Question

You are the manager of a firm that competes against four other firms by bidding for government contracts. While you believe your product is better than the competition, the government purchasing agent views the products as identical and purchases from the firm offering the best price. Total government demand is Q = 900 -5P and all five firms produce at a constant marginal cost of $40. For security reasons, the government has imposed restrictions that permit a maximum of five firms to compete in this market; thus entry by new firms is prohibited. A member of Congress is concerned because no restrictions have been placed on the price that the government pays for this product. In response, she has proposed legislation that would award each existing firm 20 percent of a contract for 650 units at a contracted price of $50 per unit. If this legislation is passed, by how much should you expect your profits to change?

Answer 1

Answer :- Page No - 1 demand as Total government 0 = 900-52 and the constant marginal cost is Me = 40 Now government oustoricts that only give time should Produce Then the market stucture will be colegopoly' and Profit maximising condition will be MR=MC where MR= Мt= Morgenal nevenaue Huggnul Cost No0, we knpo Bə : ebo-БР = 900- CU = 59 -7900 P a) 180-0.2 Q = P How total revenue TR = Poo Now TR = 180- 0.20 Mangenul revenue MR= dag diTR) = 180 - 0.480 do

Page No - 2 Now. ML = 40 Hence MR-MC amplis 180 - 040040 - 180-40 c0:40 140 = 0.40 140 003350) and price will be p= - 180-0.28) 160 - 0-2 (350) Now onits will be MC = 40 Hence the total cost of prodeusing 'bo TC = HD ON - HD(350) = 14000 Hence the profit will be t= Total devenue - Total cost

Page No - (3) & CPX ) - 14000 = (130X350) - 1000 T = $31,500 Nevol congress proposed a degustation that qorrse should be formed at & 50/ unit and gruntity should be kepet at 650 units with this legistation all ao fioms can existing the market hence each team can act as a perfect competator Now , as price - $ 50/unit Vuuntity: 650 ont Hence total profit will be t' = PxG) - TC - 50x650) - hy06656) * $6500 This (T7-)$ (31,500 - 6500) $ 25,000

Page No ! - (4) our this, if the degislation profst will decline by is pussed, then $ 25,000