Competitive process in markets

Assignment Help Macroeconomics
Reference no: EM131057859

Problem 1:

Weekly residential trash hauling is subject to enormous economies of density. Once a single firm is in the neighborhood picking up garbage, it costs very little to pick up refuse from another customer. As a result, collusion among private companies often seeks to divide market areas to maximize monopoly profits. To illustrate the competitive process in markets dominated by few firms, assume that a two-firm duopoly dominates the market for weekly residential trash hauling in Akron, Ohio and that the firms face a linear market demand curve for annual garbage services:

P = 4,000 - 4Q

whereP is price and Q is the number of customers served per year. Thus Q = QA + QB. For simplicity, also assume that both firms offer an identical service quality, have no fixed costs and variable cost VCA = $800QA and VCB= $960QB, respectively.

a. Derive the output reaction curves (functions) for Firms A and B.

b. Calculate the Cournot market equilibrium price and output solutions for each firm.

c. How much profit will each firm earn at the Cournot equilibrium?

d. How much would each firm produce, what price would each charge and how much profit would each earn if each were to be the sole monopoly seller in the market? (Note: There are 2 outcomes here, one where firm A is the only seller and one where firm B is the only seller).

e. How do the profits compare under the Cournot solution and the two monopoly outcomes?

Rather than the Cournot or monopoly outcomes, suppose that Firm A is the Stackelberg leader in this market. How much will each firm sell and at what price?

Problem 2:

Suppose you are the manager for a firm that has a monopoly on the product you produce and sell. Market research has shown that the demand by a typical customer for the product you sell is given by:

P = $180 - 3Q

Assume you have no fixed costs. From your production department, you are told that the variable costs of production are given by:

VC (Q) = .75Q2

a. If you decide to offer the product for sale to all buyers at a single price, what price will you charge and how much will you sell to a typical customer? 

b. What profits per consumer will the firm earn under this pricing strategy?

c. Now suppose you decide to use a simple block pricing strategy whereby you offer your product as a single package of a predetermined number of units. How much will you sell to a typical customer? (Hint: What is the optimal bundle size?)

d. What price per consumer will the firm charge under this pricing strategy?

e. Compare the profits under the two pricing strategies. Comment on the comparison.

Reference no: EM131057859

Questions Cloud

What is a price taker : What is a price taker? Discuss the assumptions that are made in order to obtain the perfectly competitive model.
Tax cut on households present value of lifetime resources : Suppose a government lives for two periods. It makes an exogenous amount of government expenditures each period. These have nominal value P1G1 = 100 and P2G2 = 50. It also charges households a lump sum tax, Tt each period. Write down the government’s..
Tax rate be for the calculation of the debt component : Suppose that LilyMac Photography expects EBIT to be approximately $66,000 per year for the foreseeable future, and that it has 300 10-year, 4 percent annual coupon bonds outstanding. (Use Table 11.1) What would the appropriate tax rate be for use in ..
The issues of management style-practices : You have been retained as a consultant byPaulGreen, the Managing Director of GrantpacLtd, to advise on the tasks facing the newappointee to the role of National Sales and Marketing Manager.
Competitive process in markets : As a result, collusion among private companies often seeks to divide market areas to maximize monopoly profits. To illustrate the competitive process in markets dominated by few firms, assume that a two-firm duopoly dominates the market for weekly..
What activities you will do in the software design step : discuss the reasons why you need to use them, and why that diagram or chat can help you to validate and improve your design.
Preferred stock weight-debt weight and equity weight : BetterPie Industries has 7 million shares of common stock outstanding, 4 million shares of preferred stock outstanding, and 20,000 bonds. Assume the common shares are selling for $49 per share, the preferred shares are selling for $26.50 per share, a..
Discuss interactions between westward expansion and ethnic : Discuss the interactions between westward expansion, ethnic/racial tensions, and Gilded Age industrialization. What were the significant events, characters, movements, and/or ideas?
Which is better suited for web applications : Explain the difference between two-tier and three-tier architectures.

Reviews

Write a Review

 

Macroeconomics Questions & Answers

  Deposit creation process using deposit multiplier

What is the net effect on the money supply in the economy? Show your work. Assume instead that Sammy uses the $10,000 he receives to pay back a loan from Bad Boys Bank. $8,000 goes to repay the loan itself, and $2,000 represents his Interest payme..

  Production possibilities curve

Using a production possibilities curve, explain (using narrative and graphs) the opportunity cost principle. Please provide a “real-world” example where this principle would be applied in the public/healthcare/nonprofit sector.

  How much does the farmers revenue change

The farmer initially grows 1,057 acres of wheat and 0 acres of corn. Suppose the price of corn increases by $102 per acre harvested and how much does the farmer's revenue change by if she continues to grow wheat even after the price of corn increas..

  Illustrate what will be the new evel of quantity demanded

If High-Time lowers the price, Illustrate what will be the new evel of quantity demanded. Of the new revenue

  Illustrate what amount should kilarny company pay

Illustrate what amount should Kilarny Company pay for this investment if it earns a 6% return. What cash proceeds did Galway Bay receive from issuance of the bonds.

  Number of firms in monopolistically competitive industry

All firms in a Cournot monopolistically competitive industry have the same cost function C (q)= 25 + 10q. Compute the equilibrium price, total output, firm output and number of firms in the industry.

  What will happen to the equilibrium level of gdp if investor

What will happen to the equilibrium level of GDP if investors become optimistic about the country’s future and raise their investment to $600?

  Equilibrium of a competitive labor market

1. The equilibrium of a competitive labor market is associated with 2. Which of the following would result in a short-run increase in the wage rate in a competitive labor market?

  Define coutsourcing and cemerging markets

Over the past decade, many media articles have discussed the topics of "Coutsourcing" and "Cemerging markets", voicing concerns about U.S. deficits and debt and the impact on the U.S. dollar

  What are the new equilibrium wage rate and demand

Next assume that the price of a substitute resource increases, other things constant. What happens to demand for labor What are the new equilibrium wage rate and employment level What happens to economic rent

  Suppose that the interest rates in the us and germany are

suppose that the interest rates in the u.s. and germany are equal to 5 that the forward one year value of the euro is

  Define what kinds of rules would the need to institute

If the villagers together decided to achieve the allocation in part (b), what kinds of rules would the need to institute If they wanted everyone to benefit equally in the new system, what kind of tax and transfer system would they need

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd