4. (20 total points) Consider two firms, firm 1 and firm 2, producing identical products so...
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4. (20 total points) Consider two firms, firm 1 and firm 2, producing identical products so that they are forced to charge identical prices. The sole strategic choice of the firms is the amount they choose to produce, q and q2. Once the firms select their quantities, the resulting industry price is whatever price is required to "clear the market" which is the price at which consumers are willing to buy the total production, q1+q2. Suppose that the firms have no marginal costs of production and market demand is given by: P=600 - q1 - q2. a. (5 points) If the firms must make their output decisions simultaneously, how much will each firm produce? b. (4 points) What will be the resulting industry price and profit for each firm? c. (5 points) If the firms could achieve cooperation, what would their resulting profit be? d. (6 points) What forces would work to achieve and maintain such cooperation? What forces would work against it? 4. (20 total points) Consider two firms, firm 1 and firm 2, producing identical products so that they are forced to charge identical prices. The sole strategic choice of the firms is the amount they choose to produce, q and q2. Once the firms select their quantities, the resulting industry price is whatever price is required to "clear the market" which is the price at which consumers are willing to buy the total production, q1+q2. Suppose that the firms have no marginal costs of production and market demand is given by: P=600 - q1 - q2. a. (5 points) If the firms must make their output decisions simultaneously, how much will each firm produce? b. (4 points) What will be the resulting industry price and profit for each firm? c. (5 points) If the firms could achieve cooperation, what would their resulting profit be? d. (6 points) What forces would work to achieve and maintain such cooperation? What forces would work against it?
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Answer rating: 100% (QA)
a If the firms must make their output decisions simultaneously they will maximize their joint profit... View the full answer
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
Posted Date:
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