Homework Answers
(a)
A collusion of firms act like a monopolist, equating MR and MC.
P = 18 - Q
TR = PQ = 18Q - Q2
MR = dTR/dQ = 18 - 2Q
MC = dC/dQ = Q
18 - 2Q = Q
3Q = 18
Q = 6
P = 18 - 6 = 12
(b)
TR = 12 x 6 = 72
TC = (6 x 6 / 2) = 18
Profit = TR - TC = 72 - 18 = 64
(c)
A collusion of multiple firms is called a Cartel.
(d)
A Cartel is inherently unstable, because each member of the cartel has the incentive to cheat and deviate from the cartel agreement, by either selling higher quantity or by selling at lower price.
Suppose a second firm enters the market described in question 1 (market demand is still Q...
Suppose a second firm enters the market described in question 1 (market demand is still Q = 18 – P) with the same cost (CQ) = Q?). a. If the two firms successful collude what is the equilibrium market quantity and price? b. If the two firms successfully collude what is the joint profit? c. What do we call a collusion of firms? d. Why do we not usually see successful collusion of firms?
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9)...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. (10 points) Suppose the two firms cannot collude and instead compete in the Cournot Model in the market described in question 1 (market demand is still Q 18 – P) with the same cost (C(q) = -23. 2 a. Set up firm 1's profit maximization. b. Solve for firm 1's best response function. C. Solve for firm 1's quantity, firm 2's quantity,...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9)...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. Suppose that firm 1 in the market described in question 1 has first mover advantage. (Market demand is Q 18 – P and both firms have the same cost C(Q) - Q? a. What do we call a market where two firms move sequentially? b. Set up and solve for firm l's output, firm 2's output, market output, and equilibrium price. Show...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9)...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. 1 Suppose we realize that the market described in question 1 (Market demand is still Q = 18 – P) has a negative externality. The cost function Cp(Q) -Q2 is private cost. We 2 now know the cost of the externality is CE(Q) = Q2. a. What is the marginal cost of the externality, MCE? b. What is the marginal cost to...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9)...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. Suppose that that firm 2 that invests in a new technology that changes it cost structure from firm 1. Market demand is still Q = 18 – P, firm 1 still faces costs 1 f(0) == Q}, and now firm 2 has costs, C3(Qx) = 23. Consider a Cournot model again. a. What is firm 1's best response function? b. Set up...
Suppose we have a market with two firms, and market demand Q = 18 - P...
Suppose we have a market with two firms, and market demand Q = 18 - P and a cost c(Q) =Q2. Suppose that firm 1 has first mover advantage. a. What do we call a market where two firms move sequentially? b. Set up and solve for firm 1's output, firm 2's output, market output, and equilibrium price. Show all work for each step. C. Do consumers prefer this over the Cournot equilibrium? d. Does firm 2 prefer this type...
3. Suppose the two firms cannot collude and instead compete in the Cournot Model in the...
3. Suppose the two firms cannot collude and instead compete in the Cournot Model in the market described in question 1 (market demand is still Q = 18 – P) with the same cost (C(Q)=Q2). e. Do consumers prefer the Cournot competition equilibrium over the collusion of the two firms in question 3? f. Do the two firms prefer Cournot competition over colluding (assuming the collusion agreement is to split joint profits equally)?
Suppose the two firms cannot collude and instead compete in the Cournot Model in the market...
Suppose the two firms cannot collude and instead compete in the Cournot Model in the market described in question 1 (market demand is still Q=18-P) with the same cost (C(Q)=1/2 *Q^2). Set up firm 1’s profit maximization. Solve for firm 1’s best response function. Solve for firm 1’s quantity, firm 2’s quantity, the equilibrium market quantity, and price. Show your work. Is this a Nash equilibrium? Do consumers prefer the Cournot competition equilibrium over the collusion of the two firms...
Suppose we have a market demand Q = 18 – P and a cost c(Q)={Q. a....
Suppose we have a market demand Q = 18 – P and a cost c(Q)={Q. a. What is the inverse demand? b. What is the competitive equilibrium market quantity and price? C. If the market had a monopoly, what is the equilibrium quantity and price? Set up the profit maximization and show all steps. d. What is the mark up?
1. Suppose we have a market demand Q = 18 – P and a cost C(q)...
1. Suppose we have a market demand Q = 18 – P and a cost C(q) =*Q2. a. What is the inverse demand? b. What is the competitive equilibrium market quantity and price? C. If the market had a monopoly, what is the equilibrium quantity and price? Set up the profit maximization and show all steps. d. What is the mark up? e. What is the monopoly's profit? f. What is the deadweight loss compared to perfect competition?
Suppose a second firm enters the market described in question 1 (market demand is still Q = 18 – P) with the same cost (CQ) = Q?). a. If the two firms successful collude what is the equilibrium market quantity and price? b. If the two firms successfully collude what is the joint profit? c. What do we call a collusion of firms? d. Why do we not usually see successful collusion of firms?
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. (10 points) Suppose the two firms cannot collude and instead compete in the Cournot Model in the market described in question 1 (market demand is still Q 18 – P) with the same cost (C(q) = -23. 2 a. Set up firm 1's profit maximization. b. Solve for firm 1's best response function. C. Solve for firm 1's quantity, firm 2's quantity,...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. Suppose that firm 1 in the market described in question 1 has first mover advantage. (Market demand is Q 18 – P and both firms have the same cost C(Q) - Q? a. What do we call a market where two firms move sequentially? b. Set up and solve for firm l's output, firm 2's output, market output, and equilibrium price. Show...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. 1 Suppose we realize that the market described in question 1 (Market demand is still Q = 18 – P) has a negative externality. The cost function Cp(Q) -Q2 is private cost. We 2 now know the cost of the externality is CE(Q) = Q2. a. What is the marginal cost of the externality, MCE? b. What is the marginal cost to...
Suppose we have a market demand Q = 18 – P and a cost C(Q) 9) = 3Q?. Suppose that that firm 2 that invests in a new technology that changes it cost structure from firm 1. Market demand is still Q = 18 – P, firm 1 still faces costs 1 f(0) == Q}, and now firm 2 has costs, C3(Qx) = 23. Consider a Cournot model again. a. What is firm 1's best response function? b. Set up...
Suppose we have a market with two firms, and market demand Q = 18 - P and a cost c(Q) =Q2. Suppose that firm 1 has first mover advantage. a. What do we call a market where two firms move sequentially? b. Set up and solve for firm 1's output, firm 2's output, market output, and equilibrium price. Show all work for each step. C. Do consumers prefer this over the Cournot equilibrium? d. Does firm 2 prefer this type...
3. Suppose the two firms cannot collude and instead compete in the Cournot Model in the market described in question 1 (market demand is still Q = 18 – P) with the same cost (C(Q)=Q2). e. Do consumers prefer the Cournot competition equilibrium over the collusion of the two firms in question 3? f. Do the two firms prefer Cournot competition over colluding (assuming the collusion agreement is to split joint profits equally)?
Suppose we have a market demand Q = 18 – P and a cost c(Q)={Q. a. What is the inverse demand? b. What is the competitive equilibrium market quantity and price? C. If the market had a monopoly, what is the equilibrium quantity and price? Set up the profit maximization and show all steps. d. What is the mark up?
1. Suppose we have a market demand Q = 18 – P and a cost C(q) =*Q2. a. What is the inverse demand? b. What is the competitive equilibrium market quantity and price? C. If the market had a monopoly, what is the equilibrium quantity and price? Set up the profit maximization and show all steps. d. What is the mark up? e. What is the monopoly's profit? f. What is the deadweight loss compared to perfect competition?
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