Consider a market with two firms A and B producing a good. Their cost functions are...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider a market with two firms A and B producing a good. Their cost functions are CA(QA) = Q² + aQA + F₁ and CB (QB) = Q3 +bQB + FB, respectively. Where FA and FB are fixed costs. The demand function for the good is P(Q)= a - BQ, where Q = QA + QB. (4+4+4 Marks) a. Write the profit maximization problem of the two producers. Assume that each producer treats the other producer's output decisions as given and write the first order conditions for the optimization problem for both producers. Use Cramer's rule to find the optimal quantities chosen by both producers. b. Write the total differential of the first order conditions treating QA and QB as endogenous variables and a, b, a, ß as exogenous variables. Express the sytem of equations in the matrix form Ax = b. c. Use Cramer's rule to find the impact of a change in the marginal cost of firm A on output decisions of firms A and B, respectively and discuss their sign. Consider a market with two firms A and B producing a good. Their cost functions are CA(QA) = Q² + aQA + F₁ and CB (QB) = Q3 +bQB + FB, respectively. Where FA and FB are fixed costs. The demand function for the good is P(Q)= a - BQ, where Q = QA + QB. (4+4+4 Marks) a. Write the profit maximization problem of the two producers. Assume that each producer treats the other producer's output decisions as given and write the first order conditions for the optimization problem for both producers. Use Cramer's rule to find the optimal quantities chosen by both producers. b. Write the total differential of the first order conditions treating QA and QB as endogenous variables and a, b, a, ß as exogenous variables. Express the sytem of equations in the matrix form Ax = b. c. Use Cramer's rule to find the impact of a change in the marginal cost of firm A on output decisions of firms A and B, respectively and discuss their sign.
Expert Answer:
Answer rating: 100% (QA)
SOLUTION 2 For Firm An the cost function is given as 02A FA CA For firm B the Cost ... View the full answer
Related Book For
Economics of Strategy
ISBN: 978-1118319185
6th edition
Authors: David Besanko, David Dranove, Mark Shanley, Scott Schaefer
Posted Date:
Students also viewed these economics questions
-
The demand function for a product is p = 49 x2 and the supply function is p=4x+4. Find the equilibrium point and the consumers surplus there.
-
1. Consider a market with two firms managed by Harry and Vera. Under a cartel (both firms pick the high price), each firm earns a profit of $80. Under a duopoly (both firms pick the low price), each...
-
The demand function for a product is Qd= 100 - BdP .Suppose that there is a tax of t dollars per unit that producers must pay and that the supply function for the product when the tax is t and the...
-
Host A has a file of 49.5Kbytes to send to host C and host B has a file of 70.5Kbytes to send to host D, both using TCP. TCP connection 1 from A to C and TCP connection 2 from B to D share one...
-
Each of the items below must be considered in preparing a statement of cash flows for Baskerville Co. for the year ended December 31, 2015. For each item, state how it should be shown in the...
-
Choose one of the recent laws that have been enacted that are included in the chapter and discuss why it is or isnt an effective stop-gap to health care fraud and abuse.
-
The condition for spontaneity of a chemical reaction is (a) \(\Delta G_{T, P} <0\) (c) \(\Delta G_{T, P}=0\) (b) \(\Delta G_{T, P}>0\) (d) None of these.
-
Inferring Bad Debt Write-Offs and Cash Collections from Customers Microsoft develops, produces, and markets a wide range of computer software, including the Windows operating system. On its recent...
-
what ways do mindfulness-based stress reduction (MBSR) techniques contribute to reducing stress, and what are their limitations ?
-
A block diagram for internal model control, a control technique that is considered in Chapter, is shown in Figure. Transfer function Gp denotes the process model, while Gp, denotes the actual process...
-
A company A pays $1,000,000 for 30% of the voting stock of Company B in 2020. In 2020, B reports net income of $500,000 and dividends of $75,000. In 2021, B reports net income of $300,000 and...
-
5.3 Rewrite the following program fragment that is written using the GPR instruction set for execution on a CISC processor that provides the same instruction set as the GPR processor but allows the...
-
{x = {0, 1}* |x|x| -5] = x[|x| -2]= 0, or x represents a multiple of 3 in binary} Specify an NFA with at most 10 states recognizing this language.
-
Give the tightest possible upper bound for the worst case running time for each of the following in terms of N. Assume that the most time-efficient implementation is used. a. Pushing a value onto a...
-
When pricing jobs (Job Evaluation Methods) describe any two methods. In your opinion, which of the two methods is best for organizations to practice? Please explain.
-
The world is constantly changing. Some of the businesses and organizations that were around a decade ago are now gone. Businesses that are successful continually change and adapt to survive. Discuss...
-
OL 11. III. ON. OV. Assuming the Real rate is 1.5 per cent and the Nominal rate is 3.7 per cent, what would be the most accurate estimation of Inflation? 2.167 per cent. 5.256 per cent. 2.467 per...
-
One hundred pounds of water at atmospheric pressure are heated from 60F to 200F. What is the enthalpy change? The internal energy change? Why is the difference between the internal energy change and...
-
Why are the Cournot and Bertrand models considered static? What aspects of real world behavior might be missing in static models?
-
What is throughput? Is throughput as important today as it was 100 years ago?
-
What is the property rights theory of the firm? Is this theory consistent with the theories of vertical integration described in Chapter 3?
-
The force, \(F\), of the wind blowing against a building is given by \(F=C_{D} ho V^{2} A / 2\), where \(V\) is the wind speed, \(ho\) the density of the air, \(A\) the cross-sectional area of the...
-
You need to design a square toroid such that the magnetic field in the centre of the square windings is \(0.0020 \mathrm{~T}\), and the side length of a square winding is \(3 \mathrm{~cm}\). The wire...
-
Show that each term in the following equation has units of \(\mathrm{lb} / \mathrm{ft}^{3}\). Consider \(u\) a velocity, \(y\) a length, \(x\) a length, \(p\) a pressure, and \(\mu\) an absolute...
Study smarter with the SolutionInn App