****I have the answers, but I need explainations on HOW to get them so I can und
ID: 1222420 • Letter: #
Question
****I have the answers, but I need explainations on HOW to get them so I can understand what's going on, please.****
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1) Suppose the market for good X has a four-firm concentration ratio of 0.80. Having worked for the four largest firms in the industry, you know the sales for these four firms are given by $100,000, $125,000, $150,000, and $175,000. Based on this information, we know that sales for the remaining firms in the industry are?
ANS= 137,500.
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2) The inverse demand in a Cournot duopoly is P = a b(Q1 + Q2), and costs are C1(Q1) = c1Q1 and C2(Q2) = c2Q2. The government has imposed a per-unit tax of $t on each unit sold by each firm. The equilibrium output of each firm is the same as a situation where each firm's?
ANS= marginal cost increases by t.
Explanation / Answer
1.ANSWER :
FOUR FIRM CONCENTRATION RATIO = SALES OF LARGEST FOUR FIRMS / TOTAL SALES OF THE INDUSTRY
0.80 = ( $100,000 + $125,000 + $150,000 +$175,000 ) / TOTAL SALES
TOTAL SALES = $ 550,000 / 0.80 = $687500
THEN SALES OF THE REMAINING FIRMS IN THE INDUSTRY = TOTAL SALES - LARGEST FOUR FIRMS
= $687,500 - $550,000
= $137,500.
2 ANSWER :
HERE IT IS CLEARLY EVIDENT THAT THE COST PER UNIT INCREASES WITH EACH ADDITIONAL UNIT OF SALES, SINCE THE TAX PER UNIT IS A MARGINAL COST.
THUS, THE TOTAL MARGINAL COST INCREASES BY t.
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