Imagine that you find a job as a market analyst. Your first assignment is to analyze...

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Imagine that you find a job as a market analyst. Your first assignment is to analyze the market for dog ice cream, a treat that dog lovers like to buy and feed to their dogs. There are two firms in the market, Fropaws, and Iceyums. Fropaws quantity is denoted by q₁ and the cost of production in its factory is summarized by a cost function C(q₁) = 60q₁. Iceyum's quantity is denoted by q2 and the cost of production in its factory is given by C(q2) = 24q2. The market price is given by the inverse demand equation: P = 2400 - 6Q, where Q denotes the market quantity of output from the two firms, i.e., Q=q₁ + 92. a) Write down the profit functions for Fropaws and Iceyums as a function of q₁ & q2. b) Now find the best response function for each firm, and graph their best response functions. c) What is the Nash equilibrium level of output for each firm, market price, profit of each firm, and market quantity? d) Suppose the owner of Fropaws were to suggest to the owner of Iceyums that they cooperate, acting as a cartel and jointly agreeing on an amount to produce, and splitting the profits. How should the firms distribute output across their factories in this case? Explain why in one or two sentences. What would be the total quantity produced, and what would be the profits of the two firms? Would both firms be better off with this deal, than in the Cournot equilibrium in part c? e) How will the cartel deal affect the welfare of consumers? Compare consumer surplus with the Cournot price and market quantity, to consumer surplus with the cartel price and quantity [hint: the area of a triangle is 0.5*base*height]. Imagine that you find a job as a market analyst. Your first assignment is to analyze the market for dog ice cream, a treat that dog lovers like to buy and feed to their dogs. There are two firms in the market, Fropaws, and Iceyums. Fropaws quantity is denoted by q₁ and the cost of production in its factory is summarized by a cost function C(q₁) = 60q₁. Iceyum's quantity is denoted by q2 and the cost of production in its factory is given by C(q2) = 24q2. The market price is given by the inverse demand equation: P = 2400 - 6Q, where Q denotes the market quantity of output from the two firms, i.e., Q=q₁ + 92. a) Write down the profit functions for Fropaws and Iceyums as a function of q₁ & q2. b) Now find the best response function for each firm, and graph their best response functions. c) What is the Nash equilibrium level of output for each firm, market price, profit of each firm, and market quantity? d) Suppose the owner of Fropaws were to suggest to the owner of Iceyums that they cooperate, acting as a cartel and jointly agreeing on an amount to produce, and splitting the profits. How should the firms distribute output across their factories in this case? Explain why in one or two sentences. What would be the total quantity produced, and what would be the profits of the two firms? Would both firms be better off with this deal, than in the Cournot equilibrium in part c? e) How will the cartel deal affect the welfare of consumers? Compare consumer surplus with the Cournot price and market quantity, to consumer surplus with the cartel price and quantity [hint: the area of a triangle is 0.5*base*height].

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Dog Ice Cream Market Analysis a Profit Functions Fropaws Pq qq Cq 2400 6q qq 60q Iceyums Pq qq Cq 24... View the full answer