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N firms compete in a perfectly competitive industry. Market demand for goods is given by Q = 21 50 - 5P, where P denotes the market price. For each firm, I, the long-run total cost function, C(qi ), is

C(qi ) = 0 if q i = 0

C(qi ) = 100 - 10q + 100 qi^2 for qi > 0

Assume that there are free entry and exit. Find the level of output of each firm, the market price, and the total number of firms in the long-run equilibrium.

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019
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Related questions

Consider the following market game: An incumbent firm, called firm 3, is already in an industry. Two potential entrants, called firms 1 and 2, can each enter the industry by paying the entry cost of 10. First, firm 1 decides whether to enter or not. Then, after observing firm 1's choice, firm 2 decides whether to enter or not. Then, after observing firm 1's choice, firm 2 decides whether to enter or not. Every firm, including firm 3, observes the choices of firms 1 and 2. After this, all of the firms in the industry (including firm 3) compete in a Cournot oligopoly, where they simultaneously and independently select quantities. The price is determined by the inverse demand curve p = 12 − Q, where Q is the total quantity produced in the industry. Assume that the firms produce at no cost in this Cournot game. Thus, if firm i is in the industry and produces qi, then it earns a gross profit of (12 − Q)qi in the Cournot phase. (Remember that firms 1 and 2 have to pay the fixed cost of 10 to enter).

(a) Compute the subgame perfect equilibrium of this market game. Do so by first finding the equilibrium quantities and profit in the Cournot subgames. Show your answer by designating optimal action on the tree and writing the complete subgame perfect equilibrium strategy profile. [Hint: In an n-firm Cournot oligopoly with demand p = 12 − Q and 0 costs, the Nash equilibrium entails each firm producing the quantity q = 12/(n + 1).]

(b) In the subgame perfect equilibrium, which firms (if any) enter the industry?

There are two firms in the industry. Let q1 and q2 be the two firms in an industry and Q= q1 + q2 be the total output. The inverse demand in the industry if P (Q)= 45 - Q. The cost function for each firm is C(qi) = 9qi.

Assume oligopolistic competition between the two firms is Bertrand. Which of the following options are true?

A. Each firm tries to maximize its profit while choosing its output while taking its rival's output choice as given.

B. Both of the above are true.

C. Each firm tries to maximize its profit while choosing its price while taking its rival's price to be given.

D. None of the above is true.

The equilibrium prices and output of Firm 1 and Firm 2, assuming that the consumers will split evenly between the two firms if the firms offer the same price, are :

A. 6,18

B. 9, 15

C. 9, 18

D. 4,5

Each firm's profit level is:

A. 9

B. 5

C. 0

D. 36

The consumer surplus is given by:

A. 0

B. 856

C. 36

D. 648

The market outcome under Bertrand competition is:

A. Perfectly identical to the competitive market outcome.

B. The equilibrium price is more but the equilibrium quantity is less than the competitive market.

C. The equilibrium price is less but the equilibrium quantity is more than the competitive market.

D. The equilibrium price and quantity are less than the competitive market equilibrium price and quantity.

Please Explain Answers

Your firm is one of 100 identical firms operating in the short run in a perfectly competitive market. Your total cost function (short run and long run) is C = 800 + 25 q + 0.5 q2, and your marginal cost function is MC = 25 + q. The (short run and long run) market demand curve is given by Q = 2,750 – 5P. a.Find the supply curve for your firm. Show work. Then, find the short-run market supply curve. Show work. b.Find equilibrium price, P*, and quantity, Q*, in the market in the short run.Show work. c.Find the lowest price at which your firm will not exit the market in the long run.Show work. Referring to your answer in part b, should your firm exit the market in the long run if P* in the market does not increase over time?Explain. d.If you choose not to exit, how many firms (including your own) do you expect to be in the market in the long run?Show work, and explain.

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