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produced by firm 1 and firm 2 in a SPNE? Find the market price po and firm profits, nj and no. 13.3. Suppose there are n identical firms in an oligopoly who compete in quantities. The inverse market demand is given by p = 2520 - Q, where Q = Er_1 91. Each firm's cost function is given by c,(q;) 0.597 + 32, 400, where $32, 400 is the fixed (i.e., sunk) cost of entering this market. (a) Calculate the output, q" produced by a typical firm in a symmetric NE as a function of n. Calculate an expression for the NE profit, *" as a function of n. (b) If there are no barriers to entry, firms will enter the market until a typical firm earns zero profits. How many firms will there be in this market in the long run? 13.4. There are 20 identical firms, each with a cost function c(q) = 0.5q' + 30q. The inverse market demand is p = 250 - Q, where Q = _71 9;- (a) Calculate the symmetric NE quantity produced by each firm, q", and the market equilibrium price, p*. (b) Suppose 10 of the firms receive a $22 per-unit subsidy; call these the low-cost (1) firms. An I-type firm now has a cost function CI(q1) = 0.5(q1)2 + 8q1. The remaining 10 firms who do not re- ceive a subsidy are the high-cost (hi) firms and with cost function Ch (qh) = 0.5(q1)2 + 30q, as before. Calculate the new Nash equi- librium where all the I-type firms produce q;, and the type h firms produce q- Calculate new market equilibrium price, pa. 13.5. Consider an asymmetric Hotelling model where firm 1 has a retail lo- cation at the extreme left of a mile-long Main Street, while firm 2 is located at the other extreme. There are 100 consumers who are evenly distributed over this market. The value of the product sold is v = $10 to any consumer. The marginal cost of production is $1.40 per unit to firm 1 and $3.20 to firm 2; there are no other costs. The transporta- tion cost is $1 per mile. Calculate the NE prices (pi, p; ), the associated quantities (91,92), and profits ( nj, 72).3 minutes, 55 seconds. A Question Completion Status: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Problem solving "Al Atlal" Company operates in Food and Beverages industry since 1970. Its first restaurant was established in Beirut at that time. "Al Atlal" has had developed efficient operation management over the past 40 years, which led it to open 40 restaurants in the Middle East and North Africa including the UAE. Its restaurants offer a mix of Lebanese and Brazilian cuisine, which made the company products unique, compared to its competitors. However, during last two years, the company started experiencing a slowdown of its sales due to a lack of innovation in the food menu. Consequently, its credit rate passed from AAB to BB. Since 1999, "Atlas" is listed on the Dubai Financial Market DFM. The company is planning to expand its presence in the UAE and open two additional restaurants in Dubai blue eye Water Island and in Abu Dhabi corniche in June 2020. Therefore, "Al Atlal" company is requesting a loan of AED 90,000,000 to finance its expansion plan in the UAE. The company is planning to invest AED 20,000,000 from its retained earnings. The company has no collateral to provide. Covid 19 Pandemic negatively affected the activity of restaurants operators since mid of March 2020 with a lockdown until end of April. Starting from May, restaurants in the UAE are allowed to reopen with a maximum capacity of 20%. This negative impact for the industry is supposed to continue for a few years until a vaccine is found and tourism activity to get back to 2019 levels. The table below lists the main financial ratios of the company as well as its industry averages: Ratio Al Atlal Company Industry average Current ratio 2 3 3 6 Inventory turnover ratio 70% 40% Debt to Equity ratio 45% 40% Gross Profit-Sales Ratio 20% 30% Net Profit-Sales Ratio Questions: 1. Perform a credit analysis using the 5Cs approach (select the appropriate sentences and paste them in your answer (if applicable)). 2. As a loan officer, would you accept an application submitted by "Al Atlal" company for a business loan?I. Let the production function ber = RELi(K: capital, L: labor). the unit prices of capital and labor be both $1. (a) Find the cost function. (b) If the firm with this production function is in a competitive market and the market price is $12, how many units of products should the firm produce? =16. 2. (a) Let the cost function be C(q)-F+mq- (i) Is there economies of scale? (in) If market price is equal to marginal cost, can the firm make profit? No profit (b) Let the cost function be C(qi, q:) F+qi14q:. (i) Is there economies of scope? (ii) If market prices are equal to marginal costs, can the firm make profit? *+7 -F 3. Consider a market with 2 identical firms. Each firm has cost function c(q) q'. The market demand is P 100-q (i) Find the market equilibrium, price elasticity of demand at the equilibrium, and each firm's profit if the two firms choose output simultaneously and non-cooperatively. IT=1, =$ 9.=1.=12 4 7-45 (li) Find the market equilibrium and gach firm's profit if the two firms choose output to maximize their joint profit - 1 (iif) What is the percentage change in the profit of each firm from (1) to (in? 4. (a) There is only one firm in a market. This firm has 100 plants, each produces according to cost function o(q)-q'. The market demand is p = 18 - F - -4 Find the price, output and profit. (b) If each plant in (a) is now controlled by different owners and they behave competitively, find the market price and market output. (c) How much is the deadweight loss in (a)? (d) If the firm in (a) sells 40 plants to 40 different firms and these 40 firms behave competitively, find the market equilibrium, profit of each firm, consumers' surplus, and welfare. 5. Consider a competitive market with identical firms. Each firm has a cost function with average cost AC(q) (q-2)3+5. The market demand is p = 8 - (a) Find the deadweight loss if there are 100 firms in the market. 4018 56) (b) How many additional firms are needed to achieve market efficiency? Why these additional firms are interested in this market? $ fo (c) After the additional firms in (b) have entered the market, a firm with cost function c(q) q also enter the market. What will be the equilibrium price and output level? P= 4.5 7=240 6. Consider a market with two identical firms. Each firm has a cost function c(q)=100+20q. The market demand is p 200-q. Find the market price, each firm's output and profit, consumers' surplus, and DWL if (a) cartel, (b) Cournot model, (c) Stackelberg model, (d) Bertrand model. 7. Let the cost function of a monopolist be c(q)=100+20q. Find the market equilibrium, price elasticity of demand at the equilibrium, profit, and DWL if (a) market demand is p=100-q 1.5 (b) market demand is q 120-2p 400 2 8. There are two identical firms in the market. Each firm has cost function c(q)-24q and the market demand is p=60-q. The two firms are considering whether to produce at cooperative output level (cartel) or to set output level non-cooperatively (Cournot). (a) Find each firm's profit if (i) both firms choose to co-operate; p41. 162. fill both firms choose not to co-operate; P36. 144. (iii) one firm chooses to co-operate but another firm chooses not to co-operate. (b) Based on (a), find the market equilibrium if the firms set output levels simultaneously. 9.=7,=12 pag b. 1= 135 12:180 9. Customers are uniformly located along a street with unit length ( the left end is 0 and the right end is 1). Each of them wants to buy one unit of a good, The transportation cost of customers is c dollars perQuestion 1. For each of the following events, explain what happens to the international capital flows into Canada. a) In an attempt to address housing affordability, the provincial governments of BC and Ontario impose taxes on foreign purchases of residential real estate in 2016 and 2017 respectively. As a result, this slows down the housing markets in Vancouver and Toronto. b) On July 12, 2017, the Bank of Canada raises its key interest rate, the target for overnight rate, by 0.25 percentage points. It was the first rate hike since 2010. Question 2. A country has a fixed exchange rate when the government keeps the exchange rate against some other currency at or near a particular target. In the early years, to keep its rate fixed, China had to engage in large scale market intervention, selling yuan, buying up other countries' currencies (mainly US dollars) on the foreign exchange market, and adding them to its reserves. Draw a diagram, representing the foreign exchange situation of China when it kept the exchange rate fixed. Express the exchange rate as US dollars per yuan. Then show with a diagram how each of the following policy changes will eliminate the disequilibrium in the market. a) China no longer fixes its exchange rate and allows it to float freely. b) Placing restrictions on foreigners who want to invest in China. c) Removing restrictions on Chinese who want to invest abroad. d) Imposing taxes on Chinese exports, such as shipments of clothing, that are causing a political backlash in the importing countries. Question 3. We know that several factors affect the exchange rate. And many of the factors change ay once and so sometimes it is not possible to predict the impact on exchange rates. For each of the following combinations of factors, state whether it is possible to predict the direction of the effect on the domestic exchange rate. For the cases where it is possible to predict the direction of effect, state what that direction is. a) The domestic interest rate rises, foreign interest rate falls, and expected import demand falls as well. b) The domestic price level rises, quotas are placed on imports, and productivity is expected to rise. c) Export demand is expected to rise, the domestic price level is expected to fall, and foreign interest rates are expected to fall as well
