[22 pointej Suppose the industry demand is Q = 100 P. There are two types...

 

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[22 pointej Suppose the industry demand is Q = 100 – P. There are two types of firms in the industry: the high cost type and the low cost type. Each high cost type firm has constant marginal cost of production equal to c1. Each low cost type firm has constant marginal cost of production equal to cg. There are no fixed costs for either type of the firm. There are m high cost firms and n low cost firms. All firms compete by setting quantities simultaneously. (a) For a high cost firm i, write down its profit maximisation problem and derive the first order condition. (5 points) (b) For a low cost firm j, write down its profit maximisation problem and derive the first order condition. (5 points) (c) Derive the Cournot equilibrium. Focus on the interior solution where all firms produce positive output. Specify the output for cach high cost firm and the output for each low cost firm. (10 points) (d) What happens to the high cost type's best response if ca were to decrease? (2 points) [22 pointej Suppose the industry demand is Q = 100 – P. There are two types of firms in the industry: the high cost type and the low cost type. Each high cost type firm has constant marginal cost of production equal to c1. Each low cost type firm has constant marginal cost of production equal to cg. There are no fixed costs for either type of the firm. There are m high cost firms and n low cost firms. All firms compete by setting quantities simultaneously. (a) For a high cost firm i, write down its profit maximisation problem and derive the first order condition. (5 points) (b) For a low cost firm j, write down its profit maximisation problem and derive the first order condition. (5 points) (c) Derive the Cournot equilibrium. Focus on the interior solution where all firms produce positive output. Specify the output for cach high cost firm and the output for each low cost firm. (10 points) (d) What happens to the high cost type's best response if ca were to decrease? (2 points)

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OO 8 lo0 P P 100 Since Q u the Industry output where output of high cost type firm ... View the full answer