In a monopolistic competition environment, there are n identical firms. Each firm faces demand Q =...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
In a monopolistic competition environment, there are n identical firms. Each firm faces demand Q = 450,000 (-2(P-P)), where n is the number of firms, Q is quantity demanded from (and, in equilibrium, supplied by) each firm, P is the price charged by the firm, and P is the average price charged by all firms (taken by each individual firm to be a constant). Before each firm engages in business it must spend $1000 in a license fee. After that, for each unit that it produces, it must hire two hours' worth of labor, at an hourly rate of $5/hour. These are the only costs the firm incurs. Deductions are more important than results. Just writing a memorized formula is of little use. Explain all assumptions that you make (for example, any choice for P) and state explicitly where you use each assumption (for example if you use the assumption of identical firms, state where). n = + 10. 450 1. Show that each firm's average cost in equilibrium is given by AC 2. Show that each firm will charge price P = +10 in equilibrium. 2n 3. Calculate the equilibrium number of firms. If you are right until now you'll get a whole number. 4. Calculate the equilibrium price that each firm charges. 5. Suppose this country integrates with another country, that is 3 times as large, but is otherwise identical. That is, suppose that the size of the market simply quadruples. Redo the problem for a market size of 1,800,000, and complete the sentence below. You may use without proof the fact that one of the curves in the relevant graph for this model will not change. Note that you should again arrive at a whole number of firms. Consumers gain because the number of varieties available to them grows from varieties, and because the price decreases form $_ to $ to varieties In a monopolistic competition environment, there are n identical firms. Each firm faces demand Q = 450,000 (-2(P-P)), where n is the number of firms, Q is quantity demanded from (and, in equilibrium, supplied by) each firm, P is the price charged by the firm, and P is the average price charged by all firms (taken by each individual firm to be a constant). Before each firm engages in business it must spend $1000 in a license fee. After that, for each unit that it produces, it must hire two hours' worth of labor, at an hourly rate of $5/hour. These are the only costs the firm incurs. Deductions are more important than results. Just writing a memorized formula is of little use. Explain all assumptions that you make (for example, any choice for P) and state explicitly where you use each assumption (for example if you use the assumption of identical firms, state where). n = + 10. 450 1. Show that each firm's average cost in equilibrium is given by AC 2. Show that each firm will charge price P = +10 in equilibrium. 2n 3. Calculate the equilibrium number of firms. If you are right until now you'll get a whole number. 4. Calculate the equilibrium price that each firm charges. 5. Suppose this country integrates with another country, that is 3 times as large, but is otherwise identical. That is, suppose that the size of the market simply quadruples. Redo the problem for a market size of 1,800,000, and complete the sentence below. You may use without proof the fact that one of the curves in the relevant graph for this model will not change. Note that you should again arrive at a whole number of firms. Consumers gain because the number of varieties available to them grows from varieties, and because the price decreases form $_ to $ to varieties
Expert Answer:
Answer rating: 100% (QA)
1 We must ascertain the total cost of producing each unit of output in order to calculate the average cost in equilibrium The license fee is a fixed c... View the full answer
Related Book For
Social Media Marketing A Strategic Approach
ISBN: 978-0538480871
1st edition
Authors: Melissa Barker, Donald I. Barker, Nicholas F. Bormann, Krista E. Neher
Posted Date:
Students also viewed these organizational behavior questions
-
Is the number of atoms of each element conserved during a chemical reaction? How about the total number of moles?
-
The following is the number of retirees receiving benefits from the State Teachers Retirement System of Ohio from 1991 until 2012. a. Plot the data. b. Determine the least squares trend equation. Use...
-
The random variable is the number of nonconforming solder connections on a printed circuit board with 1000 connections.
-
Look again at the financial forecasts for Growth-Tech given in Table 4.3. This time assume you know that the opportunity cost of capital is r = .12 (discard the .099 figure calculated in the text)....
-
The Cash account in the general ledger of Ciavarella Corporation shows a balance of $112,000 at December 31, 2011 (prior to performing a bank reconciliation). The companys bank statement shows a...
-
Savemore Supply, Co., shows the following financial statement data for 2014, 2015, and 2016. Prior to issuing the 2016 statements, auditors found that the ending inventory for 2014 was overstated by...
-
Let \(X_{t}=b t+W_{t}+Z_{t}\) where \(W\) is a Brownian motion and \(Z_{t}=\sum_{k=1}^{N_{t}} Y_{k}\) a \((\lambda, F)\)-compound Poisson process independent of \(W\). The first passage time above...
-
Rosewood Cancer Hospital, a county hospital, has the following assets: 1. $4 million restricted by third-party reimbursement agreements to be used to replace radiology equipment. 2....
-
Consider two series Yt and Y2t: Y = IIY-1 +6 Or more explicitly as: Aye Aya Yit Elt + Y2t 2t in which = [1, 2]' is IID with E(e) = 0 and E(ee'): [ 0 0 a) Write the system in levels Answer: A-AU-N b)...
-
Given the time-phased work packages and network, complete the baseline budget form for the following project 0 1 Design prototype 2 ES SL LS Legend 2 Build prototype 3 ID EF Description DUR LF Soccer...
-
a) List the four types of biomolecules that we learned about this week and state which type of linkage holds each biomolecule together. Draw an example of each linkage. b) Describe the four levels of...
-
Define the computational domain, and write the full system of gov- erning equations and boundary conditions for the following situations. In each of them, consider a long straight duct with smooth...
-
Question 1 . Briefly explain the principal differences between a Basic Service Set (BSS), Extended Service Set (ESS), Independent Basic Service Set (IBSS), Personal Basic Service Set (PBSS), and Mesh...
-
Consider a manufacturer that sells his product to a dealer who resells it to final consumers. The market demand is given by P = 100 - Q. The manufacturer's constant marginal cost is $20 and the...
-
If a = < 5, 4 > and b = < 5, 3>, find each of the following. a+b= a-5b= -5b= U
-
1. Consider a random variable X that has probability mass function (pmf) given by X P(X=x) -2 6 7 8 (a) What is P(X= 6)? (b) What is P(X 7)? (c) Find E(X) (the population mean). (d) Find Var(X) (the...
-
Consider the cost of funds - the risk adjusted return on capital (RAROC benchmark) for a bank and identify some of the limitations of using this approach. Use the RAROC formula to inform your...
-
Complete the equations for the following equilibria and calculate Keq where the Keq expression includes [HO]. Be sure to enter Keq in proper scientific notation. (a) ammonia (acting as a base) reacts...
-
The long-run total cost function for producers of mineral water is TC(Q) = cQ, where Q is the output of an individual firm expressed as thousands of liters per year. The market demand curve is D(P) =...
-
The long-run average cost for production of hard-disk drives is given by AC(Q) = wr(12020Q + Q2), where Q is the annual output of a firm, w is the wage rate for skilled assembly labor, and r is the...
-
What is the shutdown price when all fixed costs are sunk? What is the shutdown price when all fixed costs are nonsunk?
-
If \(X\) is a positive random variable, prove that its negative moments are given by, for \(r>0\) : (a) \(\quad \mathbb{E}\left(X^{-r} ight)=\frac{1}{\Gamma(r)} \int_{0}^{\infty} t^{r-1}...
-
Let \(X \stackrel{\text { law }}{=} \mathcal{N}\left(m, \sigma^{2} ight)\) and \(\lambda>0\). Prove that \[\mathbb{E}\left(e^{-\lambda X^{2}} ight)=\frac{1}{\sqrt{1+2 \lambda \sigma^{2}}} \exp...
-
Chi-squared Law. A noncentral chi-squared law \(\chi^{2}(\delta, \alpha)\) with \(\delta\) degrees of freedom and noncentrality parameter \(\alpha\) has the density \[\begin{aligned}f(x ; \delta,...
Study smarter with the SolutionInn App