1. Consider a market of homogeneous products in which firms compete on quantity. Demand in this m...
1. Consider a market of homogeneous products in which firms
compete on quantity. Demand in this market is
given by
q(p) = 72 - 6p: (1)
There are both an incumbent firm M and a potential entrant E which
can both produce the good at marginal
costs 6. Prior to entry, E must incur an entry cost equal to Ce ≥
0.
(a) Suppose that Ce = 1. What are the equilibrium price, quantity
for each firm, and profit for each firm?
(b) Suppose that Ce = 0. What are the equilibrium price, quantity
for each firm, and profit for each firm?
(c) What is the maximum value of Ce for which E does not make a
loss if it enters?
(d) What is the maximum value of Ce for which it is optimal from a
welfare perspective (i.e. total surplus)
for E to enter? (At the maximum value it is also optimal for E not
to enter.)
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1. Consider a market of homogeneous products in which firms compete on quantity. Demand in this m...
1. Consider a market of homogeneous products in which firms compete on quantity. Demand in this...
1. Consider a market of homogeneous products in which firms compete on quantity. Demand in this market is given by q(p) = 72 - 6p: (1) There are both an incumbent firm M and a potential entrant E which can both produce the good at marginal costs 6. Prior to entry, E must incur an entry cost equal to Ce ≥ 0. (a) Suppose that Ce = 1. What are the equilibrium price, quantity for each firm, and profit for...
Suppose two firms compete by selecting quantities q1 and q2, respectively, with the market price given...
Suppose two firms compete by selecting quantities q1 and q2, respectively, with the market price given by p = 1000-3q1 -3q2. Firm 1 (the incumbent) is already in the market. Firm 2 (the potential entrant) must decide whether or not to enter and, if she enters, how much to produce. First the incumbent commits to its production level q2. The potential entrant, having seen q1, decides whether to enter the industry. If firm 2 chooses to enter, then it selects...
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Consider a homogeneous product industry with inverse demand function p-35 -Q a) Assume that the industry is initially monopolized by an incumbent firm (firm I) which has the exclusive right to use the state-of-the-art technology summarized by the total cost function C-10q. Find the initial monopoly equilibrium (price, quantity, industry profit, consumer surplus and total surplus) and the associated degrees of concentration (Herfindahl index) and market power (Lerner index) b) Assume now that a new firm (firm N) discovers and...
Consider a homogeneous product industry with inverse demand function p-35 -Q a) Assume that the industry...
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e&f only
Problem 3 Consider two quantity-setting firms that produce a homogeneous good. The inverse demand function for the good is p = A-(qitqd. Each firm i has a cost function C (a) what is the Nash eajuilibrium if both firms choose their Чuantities simultaneously? What are the equilibrium profits of the two firms? (b) Suppose that firm 1 can switch to a new technology under which its cost function becomes Ci F + g2/2. The cost function of firm...
3. Find the Bayesian-Nash Equilibrium for the following Entry game." Two firms in same product market Incumbent chooses Build (B) or Don't Build (D) capacity Entrant chooses Enter E or Stay Out S Incumbent has two types, which affect cost of building capacity a = high cost type, and θι low cost type-o, has a higher capacity cost than θ Prior probability of 0h is p. Idea is incumbent earns a higher profit if entrant stays out. So may want...
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Consider a homogeneous product industry with inverse demand function p-35 -Q a) Assume that the industry is initially monopolized by an incumbent firm (firm I) which has the exclusive right to use the state-of-the-art technology summarized by the total cost function C-10q. Find the initial monopoly equilibrium (price, quantity, industry profit, consumer surplus and total surplus) and the associated degrees of concentration (Herfindahl index) and market power (Lerner index) b) Assume now that a new firm (firm N) discovers and...
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