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You are a producer of semitrucks. Because it takes a long time to build a semitruck, you make your output decisions before the demand information
You are a producer of semitrucks. Because it takes a long time to build a semitruck, you make your output decisions before the demand information is actually_r_e_y_eal_ed_. The best prediction of what the demand for semi trucks will be next year is a demand curve where: P = 4000 2 Q, Where P is the market price and [1 is the total output in the market from all suppliers. Answer each of the following questions. Explain your answers and show your work. You should be able to come up with numerical answers. 3. Say you are the only producer in the m and you face a constant marginal cost of 400 to produce semitrucks. What quantity will you choose and what will be the price you receive for semitrucks? What will be your economic profits? (3 points) Quantity Price: Economic Profit Space for Calculations b. Say you are faced with a Cournot setting where you face a competitor named SEMI. Your marginal cost is still 400 and SEMI's marginal cost is 400 per semitruck. Describe the conditions of a Cournot setting. What quantity of semitrucks will you produce? What quantity will SEMI produce? What will be the market price of semitrucks? How much will each of you earn in profits? (5 points) Describe Conditions of Cournot setting. Your production of semitrucks SEMI's quantity of semitrucks Market Price of semitrucks Your Profit SEMI'S Egg; c. Now take the situation in b and add a third firm, STRUCK. STRUCK also has a marginal cost of $400 per semitruck. Describe the quantities that each firm will produce, the market price that will arise, and each firm's profits. (Hint: You can save yourself some pain in doing the math by noting that a|_|_o_f_the firms you, SEMI, and STRUCKface exactly the same cost conditions. Do you expect each firm to produce the same amount or the various firms to produce different amounts? The answer to this question should help you simplify the analysis). (6 points) Your production of semitrucks SEMI's quantity of semitrucks 5'15! El: . Market Price of semitrucks Your Profit SEMI'S Egg! STRUCK'S ggQ; d. Consider an alternative situation where only you and SEMI are in the market and instead of choosing quantity and allowing the auctioneer to set the price, you and SEMI compete by choosing price in a Bertrand setting. Your marginal cost is 400 and SEMI's is 600. What will be the market price in this setting? What will be your output choice, SEMI's output, and each of your profits? (3 points). Market Price: Your output: SEMI's output: Your profit: SEMI's profit. Explanations and Calculations for your analysis: e. What lessons do you draw from comparisons of the situations in a, b, c, and d? Explain with sentences. (3 points)
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