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suppose that firm 2 acts as a price leader and can commit in advance to setting its price once and for all. In turn, firm 1 will react to firm 2 s price, according to the profit-maximizing response found earlier, P1=52.5+.25P2. In committing to a price, firm 2 is contemplating either a price increase to P2=$73 or a price cut to P2=$67. Which price constitutes firm 2 s optimal commitment strategy? Justify your answer and explain why it makes sense. FOR YOUR REFERENCE-QUESTION 9 BELOW IN WHICH YOU ANSWERED YESTERDAY AND CAN BE FOUND UNDER MY QUESTIONS 9.) Two firms produce differentiated products. Firm 1 faces the demand curve Q1 = 75 - P1 + 0.5P2. Firm 2 faces an analogous demand curve Q2 = 75 - P2 + 0.5P1. For each firm, AC=MC=30. a.) Confirm that firm 1's optimal price depends on P2 according to P1=52.5+0.25*P2. b.) Explain why a lower price by its competitor should cause the firm to lower its own price. c.) In equilibrium, the firms set identical prices : P1=P2. Find the firms' equilibrium prices, quantities, and profits.
A consumer, D Carroll, spends all of his income on 2 goods X and Y. The 2 goods are both normal but are not complementary. The price of good X is reduced but the price of good Y is unchanged. The consumer continues to spend all of his income on th..
A manufacturer wishes to produce 1,000 metal frames. A setup time of 5 hours is required at the beginning of each batch of 20 frames. Find the setup time per frame in HOURS. hours Find the total setup time to produce the quantity needed.
One hundred compressors of 200 H.P. rating are being considered for purchase by the state highway department. The compressor index was 400 five years ago and is 520 today. The cost of 150 H.P. compressors bought five years ago is as follows.
The government is considering two policies: 1) in kind transfers of paper vouchers to families that can be exchanged for food or 2) a direct cash payment (of an amount equal to the value of the paper vouchers) that can be used for any purpose.
Paul can make either "100 bottles of wine and 0 boxes of chocolates" or "0 bottles of wine and 1600 boxes of chocolates" or a combination of wine and chocolates. For parts of this question assume that Paul's PPF reflects the property of constant o..
For the isocost line, clearly identify the vertical and horizontal intercepts. For the isoquant, clearly identify 5 combinations of Labor and Capital that will produce Q = 20 (including the bundle that minimizes the firm's cost of production). M..
On a diagram, draw the marginal cost curves for the two factories, the average and marginal revenue curves, and the total marginal cost curve (i.e., the marginal cost of producing Q = Q1 + Q2). Indicate the profit-maximizing output for each factor..
Although self-employed workers have the option to purchase private health insurance, many do not, due to adverse selection. Suppose half the population is healthy and half is unhealthy. The cost of getting sick is $1000 for the healthy and $10,000..
Given an economy that is described by the following equations: C=2,000+0.8(1-t)Y t=0.25 I=800-200i G=1200 L=0.2Y-100i M=45,000 P=150 What equation describes the goods market equilibrium
As a Plant Manager your plant team informs you that they have found a way to increase the size of the manufacturing run from 10,000 to 18,000 units in increments of 2000 units. The set up cost is 150,000 and defects cost $120 for removal/repair.
A purely competitive firm finds that the market price for its product is $30.00. It has a fixed cost of $100.00 and a variable cost of $15.00 per unit for the first 50 units and then $35.00 per unit for all successive units.Does price exceed avera..
The Columbia Company manufactures a battery-powered saw. Due to increased demand during the past few years, Columbia has increased plant capacity for the saw to 300,000 units. The firm's expected output and sales for the next year in their normal..
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