What is limit pricing? a. Suppose your firm produces a product at a constant marginal cost...
What is limit pricing?
a. Suppose your firm produces a product at a constant marginal cost equal to $1. Suppose the elasticity of demand is -3. What is the profit maximizing price if one ignores the possibility of entry?
b. suppose at the above price economic profits are quite large. So your firm can expect entry. Assume that if one firm enters it would increase the elasticity of demand from -3 to -4. while if 2 firm enter it would increase to -6. What do you recommend to deter entry and why.
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What is limit pricing?
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Consider an industry for a homogeneous product with a single firm (firm 1) that can produce at zero cost. The demand function in the industry is given by Q-20-P. Now suppose that a second firm (firm 2) considers entry into the industry. Firm 2 can also produce at zero cost. If firm 2 enters, firm 1 and 2 compete by setting quantities. Answer the following four questions. Qi Suppose that Firm 2 enters the market. What are the Stackelberg equilibrium...
There are only two firms in an industry with demand curves q1 = 30 - P and q2 = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. Suppose the two firms form a cartel. While firm 1 produces one-half of the...
Which of the following statements is true of a monopolistically
competitive firm?
a. It produces more than a perfectly competitive firm.
b. Its profits are protected by significant barriers to
entry.
c. It charges lower prices than a perfectly competitive
firm.
d. It earns positive economic profits in the long run.
e. It faces a downward sloping demand curve.
.
Which of the following statements is false? B D Cost and Price E F Quantity Point B shows the level...
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