(a) Express each firm's profits as a function of the three price choices. (b) Write each firm's first-order condition for profit maximization. (c) Compute the equilibrium prices and each firm's equilibrium profits.
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- AOF is the only firm selling beer around Isla Vitas, which has a beer fountain in the backyard so the marginal cost of producing beer is 0. There are two groups of consumers: students and non students. The students' beer inverse demand function is p = 60 – 6q , and the non-students' beer inverse demand function is p = 10 – 2q. AOF sells beer in two sizes: 10 ounces bottle and 5 ounces can. Due to a local act, the consumers can only buy either 1 bottle or 1 can of beer. AOF can charge different prices on each bottle and each can of beer, while it cannot tell whether a customer is a student or not. In order to maximize the profits, how much should AOF charge its 10 ounces bottle? Answer: 37.5 The correct answer is: 100.0AOF is the only firm selling beer around Isla Vitas, which has a beer fountain in the backyard so the marginal cost of producing beer is 0. There are two groups of consumers: students and non students. The students' beer inverse demand function is p=50-5q, and the non-students' beer inverse demand function is p=10-2q. AOF sells beer in two sizes: 10 ounces bottle and 5 ounces can. Due to a local act, the consumers can only buy either 1 bottle or 1 can of beer. AOF can charge different prices on each bottle and each can of beer, while it cannot tell whether a customer is a student or not. In order to maximize the profits, how much should AOF charge its 10 ounces bottle? Answer: 87.5Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to$50 and a fixed cost of $22,500. You are asked to advise the CEO as to what prices andquantities BMW should set for sales in Europe and in the United States to maximize its profits.The demand for BMWs in each market is given by:QE = 8,000 – 80PE and QU = 4,000 – 20 PU,where the subscript E denotes Europe, the subscript U denotes the United States. Assume thatBMW can restrict U.S. sales to authorized BMW dealers only. Support your answersgraphically as well.a. If, by an international agreement between Europe and United States, BMW wereforced to charge the same price in each market, what would be the quantity sold in eachmarket, the equilibrium price, and the company’s profit?b. Suppose now that Europe and United States signed a new trade package under whichBMW now can charge different prices across the two markets. What quantity of BMWsshould the firm sell in each market, and what should the price be…
- A6 In Changlun, Kedah, there are two bakers, Abu and Bakar. Their bread taste the same and nobody can tell the difference. Abu has constant marginal costs of RM1 per loaf of bread. Bakar has constant marginal costs of RM2 per loaf. Fixed costs are zero for both of them. The inverse demand function for bread in Changlun is p(q) = 6 – 0.01(qA + qB), where q is the total number of loaves sold per day. Find the reaction function for Abu and Bakar. What is the Cournot Nash equilibrium number of loaves of bread for each baker?Suppose you're the manager of Babylon Jazz Bar. And, your bar has both young and adult customers. The demand for a typical adult customer is Q4 = 18– 3P and, for a typical young customers is Q' = 10 – 2P, where Q shows number of drinks and P shows price per drink. The marginal cost of a drink is 2-TL. And, you want to determine an entrance fee & a price per drink that maximize Babylon's profit. a. What will be the fees (entrance & per drink) for adult customers, and number of drinks? b. What will be the fees for young customers, and number of drinks? c. What is the profit of Babylon if there are 100 customers in each group?Suppose Firm X is a dominant firm in a market where the market demand is Q = 1200 -2p. Once Firm X sets its price, those small competitors set their prices a little lower so that they can always sell up to their capacity. Assume the small firms’ combined capacity is 100 units. Further assume Firm X’s marginal cost is 50. Answer the following questions. Let Q^D be the quantity produced by the dominant firm. Write down the residual demand function faced by Firm X. (Hint: Think about how Q and Q^D are related.) Find Firm X’s profit-maximizing price.
- 11 8. Suppose an industry produces an undifferentiated product for which market demand is given by X = A- P. There are many potential producers for this product, each of whom has a production function of the form: Fixed costs of F must be paid for being in business, and the marginal cost of a unit of production is a constant k . We imagine that firms decide whether to enter the industry under the supposition that, after all the firms that are going to enter do so, competition will be according to the Cournot model. That is, if N firms are in the market each has Cournot conjectures. An equilibrium is achieved with N firms in the industry if each firm, having its Cournot conjectures, does no worse than break even, whereas if another firm entered and made this an N + 1 firm Cournot oligopoly, all the firms would lose money. What is the equilibrium in this case? What (if anything) would be…an Problem 5. Consider following price competition between 2 firms. Both firms choose their prices (p, and p2) simultaneously and the market demand function given by q 10-min{p₁, P2}. Assume production costs are 0 for both firms. Thus, the payoff (profit) function for firm i is: u.(Pi. Pj) (10-P.)Pi (10-pi)Pi 2 Notice that this function is not continuous in pi 1 if Pi PjConsider the model of Bertrand competition with linear demand Q(p) = max[0, a – p) and with two- %3D firms, in which demand is split if the same price is set. Suppose linear demand with a = 8, and constant cost c = 3 per unit, suppose Firm 1 chooses price pi = 7 and firm 2 chooses price p2 = 6. Which of these prices p would be a profitable deviation from pi for Firm 1? 02 3 06 07 Suppose now a = 16, and constant cost c = 8 per unit, if p2 = 14, what is the best-response for Firm 1? 14
- Recall that in perfect competition a firm's demand curve is a horizontal line drawn at the market price level and that P=MR. With this in mind, based on the figure below, if we assume that the firm chooses the level of output that maximizes profit, what is total revenue at that output level? Price (P) 36 32 MC1 28 24 ATC 20 Dr AVC1 16 12 4 2 4 6 8 10 12 14 16 18 Quantity (Q) Select one: a. $264 b. $200 c. $220 d. $240One of the market structure that is best characterized by monopolistic competition is pizza market. Say Classico's Pizza is one of such producers in the local market. The demand for Classico's Pizza is: Qd = 225 - 10P and Classico's cost function is: C(Q) 0.15Q2. Determine Classico's long run level of output and priceType out the correct answer ASAP with proper explanation of it within 40 50 minutes.will give you thumbs up only for the correct answer. Thank you Inverse market demand is: P = 1,000 - (Q1+ Q2). Costs for each firm are identical and given by: Ci(Qi) = 4Qi The profit earned by the leader in a Stackelberg oligopoly equals $ What is Q1? What is Q2? What is Price