Two firms compete by choosing price. Their demand functions are Q, = 20 - P, + P2 and Q2 = 20 + P1 - P2. where P, and P2 are the prices charged by each firm, respectively, and Q, and Q2 are the resulting demands. Note that the demand for each good depends only on he difference in prices; if the two firms colluded and set the same price, they could make that price as high as they wanted, and earn infinite profits. Marginal costs are zero. Suppose the two firms set their prices at the same time. Find the resulting Nash equilibrium. What price will each firm charge, how much will it sell, and what will its profit be? (Hint: Maximize the profit of each firm with respect to its price.) Each firm will charge a price of $. (Enter a numeric response rounded to two decimal places.) Each firm will produceunits of output. n turn, each firm will earn profit of $ Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will each sell, and what will be profits?

Two firms compete by choosing price. Their demand functions are Q, = 20 - P, + P2 and Q2 = 20 + P1 - P2. where P, and P2 are the prices charged by each firm, respectively, and Q, and Q2 are the resulting demands. Note that the demand for each good depends only on he difference in prices; if the two firms colluded and set the same price, they could make that price as high as they wanted, and earn infinite profits. Marginal costs are zero. Suppose the two firms set their prices at the same time. Find the resulting Nash equilibrium. What price will each firm charge, how much will it sell, and what will its profit be? (Hint: Maximize the profit of each firm with respect to its price.) Each firm will charge a price of $. (Enter a numeric response rounded to two decimal places.) Each firm will produceunits of output. n turn, each firm will earn profit of $ Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will each sell, and what will be profits?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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Two firms compete by choosing price. Their demand functions are Q, = 200 - P, +P2 and Q2 = 200 + P, - P2, where P, and P, are the prices charged by each firm, respectively, and Q, and Q, are the resulting demands. Note that the demand for each good depends only on the difference in prices; if the two firms colluded and set the same price, they could make that price as high as they wanted, and earn infinite profits. Marginal costs are zero. Suppose the two firms set their prices at the same time. Find the resulting Nash equilibrium. What price will each firm charge, how much will it sell, and what will its profit be? (Hint: Maximize the profit of each firm with respect to its price.) Each firm will charge a price of $ . (Enter a numeric response rounded to two decimal places.)
Two firms compete by choosing price. Their demand functions are and Q₁ = 40-P₁ + P₂ Q₂=40+P₁-P21 where P₁ and P₂ are the prices charged by each firm, respectively, and Q₁ and Q₂ are the resulting demands. Note that the demand for each good depends only on the difference in prices; if the two firms colluded and set the same price, they could make that price as high as they wanted, and earn infinite profits. Marginal costs are zero. Suppose the two firms set their prices at the same time. Find the resulting Nash equilibrium. What price will each firm charge, how much will it sell, and what will its profit be? (Hint: Maximize the profit of each firm with respect to its price.) Each firm will charge a price of $ (Enter a numeric response rounded to two decimal places.) Each firm will produce units of output. In turn, each firm will earn profit of $ Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will each sell, and what will be…
Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? (Hint: What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?)
Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?
. The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the firms independently produces a quantity of output, and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms. Firm 2 is known to have a cost advantage over firm 1. A recent study found that the (inverse) market demand curve faced by the two firms is P = 280 – 2(Q1 + Q2), and costs are C1(Q1) = 3Q1 and C2(Q2) = 2Q2. a. Determine the marginal revenue for each firm. b. Determine the reaction function for each firm.
Two firms produce identical products at zero cost, and theycompete by setting prices. If each firm charges a low price,then both firms earn profits of zero. If each firm charges ahigh price, then each firm earns profits of £30. If one firmcharges a high price and the other firm charges a low price,the firm that charges the lower price earns profits of £50, andthe firm charging the higher price earns profits of zero. (a) Which oligopoly model best describes this situation?(b) Write this game in normal form.(c) Suppose the game is infinitely repeated. Can theplayers sustain the "collusive outcome" as a Nashequilibrium if the interest rate is 50 percent? Explain. Please answer the a, b and c parts.
Two firms compete by choosing price. Their demand functions are: Q1 = 20 -P1 +P2 and Q2 = 20 - P1 + P2 where P1 and P2 are the prices charged by each firm, respectively, and Q1 and Q2 are the resulting demands. Note that the demand for each good depends only on the difference in prices; if the two firms colluded and set the same price, they could make that price as high as they wanted and earn infinite profits. Marginal costs are zero.a. Suppose the two firms set their prices at the same time. Find the resulting Nash equilibrium. What price will each firm charge, how much will it sell, and what will its profit be? (Hint: Maximize the profit of each firm with respect to its price.) {15 Marks}b. Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will it sell, and what will its profit be? {10 Marks}c. Suppose you are one of these firms and that there are three ways you could play the game: (i) Both firms set price at the same…
6. Two firms, Firm 1 and Firm 2 and are competing in quantities. The demand they are facing is given by p=1-91-92, with p being the price of the good, and 9₁ and 92 the quantities produced by firm 1 and 2 respectively. The total cost of firm 1 is TC1 (91) = 9₁ and the one of firm 2 is TC₂ (92) = 292. (a) Find the Cournot equilibrium. (b) The government decides that it wants to make the market more competitive. As such it decides to offer to Firm 1 a license to become the leader in the market. The licence costs F, and if Firm 1 buys it, it will be allowed to choose its quantity before Firm 2. What is the maximum Firm 1 would be willing to pay for this license?
Suppose that Market demand for golf balls is described by Q= 90-3p,Where Q is measured in kilos of balls. There are two firms that supply the market. Firm 1 can produce a kilo of balls at a constant unit cost of $15 whereas firm 2 has a constant unit cost equal to $10.a. suppose firms compete in quantities. How much does each firm sell in a Cournot equilibrium? What is the market price and what are firms' profit?b. suppose firms compete in price. How much does each firm sell in a Bertrand equilibrium. What is market price and what are firms' profits?
if two firms (firm A and firm B) are competing selling T-shirts, both at $12 per shirt, both have a quantity of 50 and both can produce a t-shirt at a cost of $2 per shirt both marginal and average. If both companies are competing directly against each other in prices, what will the new marginal price of company B will be? and what will be their profits? Also, how do you solve the equilibrium price in oligopolies?
1. The market (inverse) demand function for a homogeneous good is P(Q) = 10 - Q. There are two firms: firm 1 has a constant marginal cost of 2 for producing each unit of the good, and firm 2 has a constant marginal cost of 1. The two firms compete by setting their quantities of production, and the price of the good is determined by the market demand function given the total quantity. a. Calculate the Nash equilibrium in this game and the corresponding market price when firms simultaneously choose quantities. b. Now suppose firml moves earlier than firm 2 and firm 2 observes firm 1 quantity choice before choosing its quantity find optimal choices of firm 1 and firm 2.
AT&T and Verizon have two pricing strategies: Set a high (monopoly) price or set a low (competitive) price. Suppose that if they both set a competitive price, economic profit for both is zero. If both set a monopoly price, AT&T makes an economic profit of $100 million and Verizon makes an economic profit of $200 million. If AT&T sets a low price and Verizon sets a high price, AT&T makes an economic profit of $200 mil- lion and Verizon incurs an economic loss of $100 million; if AT&T sets a high price and Verizon sets a low price, AT&T incurs an economic loss of $50 million and Verizon makes an economic profit of $250 million. Create the payoff matrix for this game. What is the equilibrium of this game? Is the equilibrium efficient?