Find the equilibrium quantity, Macroeconomics

Find the Equilibrium Quantity

In a small town only two candy shops operate and they compete with each other in quantity. Consumers do not differentiate between candies sold by the two stores. The market demand for candies is given by D(p) = 126 - p. The cost functions of the two candy stores are C1(q1) = 0.5q21 and C2(q2) = 1.5q22, respectively.

(a) Find the equilibrium quantity of candies sold by each shop, their profits and also the market price.

(b) Now imagine the game is repeated infinitely, so that collusion between the two shops may be possible. You may assume that, under collusion, the two candy stores divide the market unequally: the first store supplies twice as much as the second shop (qc1 = 2qc2). Assume also that un- der collusion, the total amount of candies supplied to the market maximizes the joint profits of the two shops. Explain the trigger strategy that helps maintain collusion among the two shops in the market in the absence of discounting. Discuss and calculate the payoffs from cooperation, deviation and the non-cooperative outcome for each firm.

(c) Calculate the critical discount factors for both candy-shops.

(d) Assume that the frequency of interactions between the two shops changes. In particular, the candy stores only choose their quantities every two periods: the two shops thus compete in period 1, period 3, period 5, etc. Does this change affect the critical discount factor derived above? If yes, derive the new critical discount factor and comment briefly. If not, explain in detail why.

Posted Date: 2/15/2013 6:58:32 AM | Location : United States







Related Discussions:- Find the equilibrium quantity, Assignment Help, Ask Question on Find the equilibrium quantity, Get Answer, Expert's Help, Find the equilibrium quantity Discussions

Write discussion on Find the equilibrium quantity
Your posts are moderated
Related Questions
To the right is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): a. Show these data graphically. Upon what specific assumptions is t

After some consultants point out that the Acme Toy Company has two bottlenecks in its production of xylophones and yo-yos. The first is a critical grinding machine that only has 9

discus the various measures that may be taken by a firm to counteract the evil effect of a trade cycle

what have you learned from the class

What is the formula for computing for national income in a closed economy with government intervention

Imagine Adam Smith living in today's economic climate. Describe what current economic issues about which he might be most concerned with and state why?

Suppose the economy is currently in recession, and the exchange rate if fixed using the IS-LM model. a) Explain and illustrate the economy adjustment (in the medium run) b) E

Do neoclassical economists view prices and wages as stickly or flexible

From Tables 3A to 3F in the Appendix the results from VAR/Block Exogeneity Granger Causality Test are that the oil price variable does Granger cause both Inflation and interest rat

definition of cheap money