Homework Help is Here – Start Your Trial Now!
Business
Economics
Alpha and Gamma are the only two phone handset manufacturers in the world. Each firm has a cost function given by: C(q) = cq + q°, where q is number of phones produced and c=70. The market demand for phones is represented by the inverse demand equation: P = a - bQ where Q = q1 + q2 is total output, a=250 and b-1. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm? Equilibrium quantity for each firm , price , profit b) It occurs to the managers of Alpha and Gamma that they could do a lot better by clluding. If the two firms were to collude, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profit for each firm in this case? Equilibrium quantity for each firm , price , profit c) What minimum discount factor is required for firms to find it worthwhile to collude? (You can assume that phones have a limited shelf life and become useless after one period, i.e. one period's output must be sold in the same period). Find also the optimal quantity that cheating firm want to produce, price and profit associated with this quantity. Round the discount factor to the first figure after the decimal sign (0.1, 0.2, 0.3, etc.) Cheating quantity , cheating price , cheating profit , discount factor

Alpha and Gamma are the only two phone handset manufacturers in the world. Each firm has a cost function given by: C(q) = cq + q°, where q is number of phones produced and c=70. The market demand for phones is represented by the inverse demand equation: P = a - bQ where Q = q1 + q2 is total output, a=250 and b-1. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm? Equilibrium quantity for each firm , price , profit b) It occurs to the managers of Alpha and Gamma that they could do a lot better by clluding. If the two firms were to collude, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profit for each firm in this case? Equilibrium quantity for each firm , price , profit c) What minimum discount factor is required for firms to find it worthwhile to collude? (You can assume that phones have a limited shelf life and become useless after one period, i.e. one period's output must be sold in the same period). Find also the optimal quantity that cheating firm want to produce, price and profit associated with this quantity. Round the discount factor to the first figure after the decimal sign (0.1, 0.2, 0.3, etc.) Cheating quantity , cheating price , cheating profit , discount factor

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
ChapterB: Differential Calculus Techniques In Management
Section: Chapter Questions
Problem 1E
See similar textbooks
icon
Related questions
Question
Alpha and Gamma are the only two phone handset manufacturers in the world. Each firm has a cost function given by: C(q) = cq + q?, where q is number of phones produced and c=70. The market demand for phones is represented by the inverse demand equation: P = a - bQ where Q = q1 + q2 is total output, a=250 and b=1. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm? Equilibrium quantity for each firm , price , profit b) It occurs to the managers of Alpha and Gamma that they could do a lot better by colluding. If the two firms were to collude, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profit for each firm in this case? Equilibrium quantity for each firm , price , profit c) What minimum discount factor is required for firms to find it worthwhile to collude? (You can assume that phones have a limited shelf life and become useless after one period, i.e. one period's output must be sold in the same period). Find also the optimal quantity that cheating firm want to produce, price and profit associated with this quantity. Round the discount factor to the first figure after the decimal sign (0.1, 0.2, 0.3, etc.) Cheating quantity , cheating price , cheating profit discount factor Part C
Transcribed Image Text:Alpha and Gamma are the only two phone handset manufacturers in the world. Each firm has a cost function given by: C(q) = cq + q?, where q is number of phones produced and c=70. The market demand for phones is represented by the inverse demand equation: P = a - bQ where Q = q1 + q2 is total output, a=250 and b=1. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm? Equilibrium quantity for each firm , price , profit b) It occurs to the managers of Alpha and Gamma that they could do a lot better by colluding. If the two firms were to collude, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profit for each firm in this case? Equilibrium quantity for each firm , price , profit c) What minimum discount factor is required for firms to find it worthwhile to collude? (You can assume that phones have a limited shelf life and become useless after one period, i.e. one period's output must be sold in the same period). Find also the optimal quantity that cheating firm want to produce, price and profit associated with this quantity. Round the discount factor to the first figure after the decimal sign (0.1, 0.2, 0.3, etc.) Cheating quantity , cheating price , cheating profit discount factor Part C
Expert Solution
steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Fundraising
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS