Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need help understanding what to do in question 3 and 4. Suppose N symmetric firms are competing in Cournot competition. Let q; denote the

I need help understanding what to do in question 3 and 4.

image text in transcribed
Suppose N symmetric firms are competing in Cournot competition. Let q; denote the quantity supplied by firm i and O the quantity supplied to the entire market, so that ? = >q,. Each firm has cost function c(,) = 400+ 20q, and total market demand is given by @ = 100 - p. 1. Find the quantity supplied by each firm in equilibrium (qi) and the total quantity supplied to the market (Q). Your answer will be a function of N. (2 points) 1. ) Q = 3 9: MC = 20 Q = 100- P P = 10 0 - 6 Xi = ( P-Mc) qi = (100- 9:- Q; - 20) q: =(80 -Q i)9:- 9:2 dri - (80-QL)- 29; = 0 91= 40 - Qi 9:40 - (n- 1) 9 /2 29 : 80- (n-1)q Q = nqi 29 + (n- 1)9 = 80 = n80 / (n + 1) Q = 180 / (N +1 ) = 80 N / (N+1) na +9 = 80 9= 80/ (n+ 1 ) 2. Using your answer to question I, find the equilibrium prices and profit level of each firm. Your answer will be a function of N. (1 point) 2. ) P= 100 - Q - 100- 80 N IN+IS = ( 10ON + 100- 80 N) ( N+ 1 ) P= (20 N + 100) ((N+ 1 ) Xi= ( P-Mc)g: = (20N+ 100 - 20) ( N + 1 ) 80 20 ( N + 5 ) 1 ( N+ 1 ) Xi = (20 N + 100 - 20 N - 20) (80) / ( N+ 1)2 Mi = (80 )2 ( N+ 1 )2 3. How many firms does this market support in equilibrium? (1 point) 4. Using your answer to question 3, what is the equilibrium quantity supplied by each firm (q:), the equilibrium quantity supplied by the entire sector (Q), and the equilibrium price? (1 point) 5. For questions 5-8, assume it is no longer possible for new firms to enter this market. Suppose firms I and 2 can merge and obtain cost function c (q) =800+15q. If the firms merge, what is the new equilibrium quantity supplied by the merged firm and any other remaining firms? (2 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics Principles And Policy

Authors: William J. Baumol, Alan S. Blinder

11th Edition

0324586213, 978-0324586213

More Books

Students also viewed these Economics questions