ECO200Y5 Study Guide - Final Guide: 6, Economic Surplus, Natural Monopoly

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magentacicada384

2 Sep 2014

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Tutorial 11 - monday - july 14, 2014 - 4pm - 5pm. 405 - 406 constant average and marginal costs of ac = mc = 10. Originally, the firm faces a market demand curve given by. A single firm monopolizes the entire market for batman masks and can produce at and a marginal revenue function given by. Mr = 60 2q (a) calculate the profit maximizing price quantity combination for the firm. What are the firm"s profits? (b) now assume that the market demand curve becomes steeper and is given by. Q = 45 0. 5p with the marginal revenue function given by. What are the firm"s profits? (c) instead of the assumptions in part (b), assume that the market demand curve becomes flatter and is given by with the marginal revenue function given by. What are the firm"s profits? (d) graph the three different situations of part (a), part (b) and part (c).

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Market demand for oranges is Q = 1000 - 2P, where Q = n * Qf + Qd and Q is the total quantity, Qf is the quantity supplied by a single competitive fringe firm and Qd is the quantity supply by the dominant firms. The dominant firm's marginal cost is given by mcd = 100, QD, and the competitive fringe's supply curve is given by Qf = -120 + P. There are three competitive fringe firms in the market.

In the long-run, there is free entry and exit for the competitive fringe firms.

a. Calculate the dominant firm's residual demand and marginal revenue of its residual demand. Plot them on the graph.

b. Calculate the equilibrium quantity and price set by the dominant firm. Also, calculate the equilibrium quantity supplied by each competitive fringe firm.

c. Now if we change the marginal cost for the dominant firm to be mcd = 50, redo the part (a) and (b) under this new marginal cost condition.

d. Now if we change the marginal cost for the dominant firm to be mcd = 150, redo the part (a) and (b) under this new marginal cost condition.

greenlouse880

I just need part 3 for this problem!! Thank you!!

Part 1 Suppose the inverse market demand function for a two-firm Cournot model is given by P=49-Q where Q=q_1+q_2 is the total output produced in the market, P is the market price, q_1 is the quantity of output produced by firm 1, q_2 is the quantity of output produced by firm 2. The marginal costs of the two firms are MC1=2 and MC2=3. For a linear inverse demand function P=a+bq, the marginal revenue is given by MR=a+2bq.

1. Find the marginal revenue MR1 of firm 1 as a function of q_1 and q_2.

2. Setting MR1=MC1, determine the reaction function of firm 1.

3. Find the marginal revenue MR2 of firm 2 as a function of q_1 and q_2.

4. Setting MR2=MC2, determine the reaction function of firm 2.

5. What quantity of output will each firm produce? That is, use the two reactions functions to find q_1 and q_2.

6. What is the market price P.

7. Determine the profits of each firm assuming there are no fixed costs.

Part 2 Now, suppose the inverse market demand function for a two-firm Stackelberg model is given by P=49-Q where Q=q_1+q_2 is the total output produced in the market, P is the market price, q_1 is the quantity of output produced by firm 1, q_2 is the quantity of output produced by firm 2. Firm is leader and firm 2 is follower. The marginal costs of the two firms are MC1=2 and MC2=3.

1. What is the follower’s reaction function?

2. Determine the equilibrium output level for both the leader and the follower.

3. Determine the equilibrium market price.

4. Determine the profits of the leader and the follower assuming there are no fixed costs.

Part 3 Use information from parts 1 & 2 to compare the output levels and profits in settings characterized by Cournot and Stackelberg.

upstairsatom

A dominant firm with a competitive fringe.

Suppose that the market demand for oranges is Q = 1000 - 2P, where Q = n * Qf + Qd and Q is the total quantity, Qf is the quantity supplied by a single competitive fringe firm and Qd is the quantity demanded by the dominant firm. The dominant firm's marginal cost is given by mcd = 100, QD, and the competitive fringe's supply curve is given by Qf = -120 + P . There are three competitive fringe firms in the market.

3.1 Short-run fixed entry/exit

a. Calculate the dominant firm's residual demand, and marginal revenue of its residual demand. Plot them on the graph.
b. Calculate the equilibrium quantity and price set by the dominant firm. Also, calculate the equilibrium quantity supplied by each competitive fringe firm.
c. Now if we change the marginal cost for the dominant firm to be mcd = 50, redo the part (a) and (b) under this new marginal cost condition.
d. Now if we change the marginal cost for the dominant firm to be mcd = 150, redo the part (a) and (b) under this new marginal cost condition.

harlequinmosquito219

ECO200Y5 Study Guide - Final Guide: 6, Economic Surplus, Natural Monopoly

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