Imperfect Competition: The inverse market demand curve for bean sprouts is given by p(y) = 100 − y,and the total cost function for any firm in the industry is given by T C(y) = 4y.(a) What is the marginal cost for any firm in the industry? What is the change in price for a one unitincrease in output?(b) If the industry were perfectly competitive, what would the industry output and price be?(c) Suppose that two Cournot firms operated in the market. What are the firms’ reaction functions?What would industry output be? What would each firm’s output be? And what would the marketprice be.(d) For the Cournot case, draw the two reaction curves and indicate the equilibrium point.(e) If the two firms decided to collude, what would be industry output? And what would the market pricebe?(f) Suppose both the colluding firms are producing equal amounts of output. If one of the colluding firmsassumes that the other firm would not react to a change in industry output, what would happen to afirmOs own profits if it increased its output by one unit?˜(g) Suppose one firm acts as a Stackleberg leader and the other firm behaves as a follower. What is themaximization problem for the leader? Solving this problem leads to what output levels for the leaderand the follower? This implies what level of industry output and what industry price?
Solution ID:10036864 | Question answered on 16-Oct-2016
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