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Economic question




Question;Consider a market;for an electronic component used in airport radar systems. Two firms hold a;patent on the component and only they can sell the product. The market demand;function is given by;P = 100 ? 1/2Q;Where Q = Q1+ Q2, is the industry output and P the price. Q1and;Q2are the outputs of the two firms respectively.;The total cost;functions for the two firms are given by;(a) Assume that the;two firms behave as Cournot Duopolists. Explaining the concept of ?best;response? or ?reaction function?, determine the best response function for each;firm. Calculate the profit maximizing output of each firm and the market price.;Calculate optimal profit of each firm.;Assume that the two firms collude and form a;cartel to maximize their joint profit. Calculate the optimal output and profit;for each firm and the market price. Also, calculate the resulting profit of;cartel. Determine whether firm 1 has any incentive to ?cheat? the cartel by;overproducing.;Suppose that firm 1;acts as a ?Stackelberg? leader and sets its quantity first to maximize its own;profit. Firm 2 acts as a follower and sets its own quantity in response to the;output set by firm 1. Calculate optimal outputs price and profits;2.;A competitive firm?s;short run total cost function is given by;Determine the range;of prices for which the firm incurs a loss but continues to produce. Also;determine the range of prices for which the firm earns a profit.;Calculate the profit;maximizing output and the resulting profit when price is $100.;Propylene is used to make plastic. The;propylene industry is perfectly competitive and each producer has a long run;total cost function given by;Where Q denotes the output;of the individual firm.;The market demand;for propylene is;Where X and P denote;the market output and price respectively.;(a) Calculate the;optimal output produced by each firm at the long run competitive equilibrium;(LRCE).;(b) Calculate the;market price and market output at the LRCE.;(c) Calculate the;number of firms at the LRCE.;(d) Suppose the;demand curve shifts to;Where A is a;positive number.;Calculate how large;A would have to be so that in the new LRCE, the number of firms is twice what;it was in the initial equilibrium.;Suppose that Saudi;Arabia lets other members of OPEC sell all the oil they want at the existing;price which the Saudis set and other members accept. The daily world demand for;OPEC oil is given by;P = 88 ? 2Q;where P is the price;per barrel of oil and Q the total quantity of OPEC oil (in millions of barrels;per day). The supply function for other members of OPEC who behave like a;?competitive fringe? is given by;Qr=.6P;The Saudis? cost of;production of oil is given by;TCs= 15Qs+20;where Qsis the daily output of oil produced by the Saudis.;Calculate the price;that Saudi Arabia will set to maximize its own profit. Also calculate the;optimal output and profit of the Saudis. Determine the output produced by other;members of the OPEC as well as the total market output.;3.;A monopolist faces the following demand and;total cost functions;Calculate the profit maximizing output and price of the;monopolist.;Calculate the resulting profit.;Suppose the government imposes an excise tax of $30 on the;production;and sale of the product. Calculate the resulting optimal;profit maximizing;output and price for the monopolist. Also determine the;level of profit;If the government?s objective is to generate the maximum;possible tax;revenue from the monopolist, what excise tax rate should the;government;impose on the monopolist? Calculate the resulting optimal;output, and;price of the monopolist as well as government?s tax revenue;ii;Two firms produce differentiated products and set prices to;maximize;their individual profits. Demand functions for the firms are;given by


Paper#57671 | Written in 18-Jul-2015

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