1. There are two firms in a market with a market demand given as: Q=160-0.2P Tot
ID: 1195201 • Letter: 1
Question
1. There are two firms in a market with a market demand given as: Q=160-0.2P Total cost fot each firm is given below. TC1=200Q + 10Q2 TC2=100Q + 5Q2 where Q = Q1 + Q2 ; Q1 is the output for firm 1 and Q2 is the output for firm 2. A. Assuming the two firms behave as perfectly competitive firms, determine the market equilibrium price and quantity, and the profit maximizing level of output for each firm. What are each firm's profits? B. If the two companies decide to collude, what are the equilibrium values of output for each firm and what is the prevailing price? What are each firms profits? C. on a graph show the answers provided in part a and b. Be sure to label all graphs. D. Assuming each firm assumes the output of the other firm to be fixed and both firms decide simultaneously on how much to produce. What are the equilibrium values of output for each firm and what is the prevailing price? What are each firms profits? E. Suppose firm 1 enters the market first. What are the equilibrium values of output for each firm and what is the prevailing price? What are each frims profits? Is there a first mover advantage in the market? F. Now suppose the firms compete by simultaneously choosing a price instead of quantity. What are the equilibrium values of output for each firm and what is the prevailing price? What are each firms profits? G. Using a graph of reaction functions show the equilibrium output values derived in parts a, b, c, d, and e.
Can someone answer this question as soon as possible?
Explanation / Answer
Multiple questions asked in a single post.
Being time consuming, first 2 parts are answered below:
Demand function: Q=160-0.2P
Or, P=800-5Q
TC1 = 200Q+10Q2
MC1 = 200+20Q
TC2 = 100Q+5Q2
MC2 = 100+10Q
a)
When the firms act as perfectly competitive firms, they will set their P=MC
Firm 1:
P=200+20Q
800-5Q=200+20Q
600=25Q
Q=24
P=680
Firm 2:
P=MC
800-5Q=100+10Q
700=15Q
Q=46.67
P=566.67
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