Presently, Able High Lift and Baker Overhead are the only suppliers of services that can lift heavy construction material to the heights required for high-rise construction projects the Northwest. No other suppliers have the equipment necessary to perform these lifts. The market inverse demand for these services is given below. P=800-80 where P is price per lift and Q is total number of lifts per week. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC₁ = 30 TVC,=5Q In the work that follows, you may round all your results to 2 decimal places to reduce the clutter in your answers. a. Currently the market operates as a two-firm Cournot duopoly. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. b. Suppose that Able had entered this market first and had a first-mover advantage. In this case we would expect the Stackelberg outcome. Determine the market equilibrium price-output solutions for each firm including their respective profits. c. Summarize the results of your findings over the two possible outcomes. In your summary include price, quantity, and industry profits. Comment on your results.
Presently, Able High Lift and Baker Overhead are the only suppliers of services that can lift heavy construction material to the heights required for high-rise construction projects the Northwest. No other suppliers have the equipment necessary to perform these lifts. The market inverse demand for these services is given below. P=800-80 where P is price per lift and Q is total number of lifts per week. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC₁ = 30 TVC,=5Q In the work that follows, you may round all your results to 2 decimal places to reduce the clutter in your answers. a. Currently the market operates as a two-firm Cournot duopoly. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. b. Suppose that Able had entered this market first and had a first-mover advantage. In this case we would expect the Stackelberg outcome. Determine the market equilibrium price-output solutions for each firm including their respective profits. c. Summarize the results of your findings over the two possible outcomes. In your summary include price, quantity, and industry profits. Comment on your results.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter9: Monopoly
Section: Chapter Questions
Problem 31P: Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as...
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