Question
Explain your answer in NO MORE THAN 5 SENTENCES for each question.Answers without proper explanation will receive zero points. 7) Suppose there are two identical
Explain your answer in NO MORE THAN 5 SENTENCES for each question.Answers without proper explanation will receive zero points.
7) Suppose there are two identical firms in a market.Firms' marginal costs are 2. The market demand curve is P=40-1.5Q. All firms make decisions simultaneously.
Suppose the firms compete by choosing the quantity produced, respectively.
a) (7 points) Derive each firm's profit-maximizing quantity produced, as a function of the others'.
b) (7 points) Compute the equilibrium quantity produced by each firm, the total quantity, and the equilibrium market price(s).
Now suppose the firms compete by choosing prices, respectively.
c) (7 points) Compute the equilibrium quantity produced by each firm, the total quantity, and the equilibrium market price(s).
d) (7 points) Compare (b) and (c), and explain why you have such results.
A new entrant enters the market. Its marginal cost is identical to the incumbents'.
e) (8 points) Compute the equilibrium market price(s) when firms compete by choosing the quantity produced.
f) (8 points) Compute the equilibrium market price(s) when firms compete by choosing prices.
g) (8 points) Compare (b), (c), (d), and (e), and explain why you have such results.
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