Suppose that there are only two bauxite-generating countries, Australia (country 1) with total cost function TC(q)...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose that there are only two bauxite-generating countries, Australia (country 1) with total cost function TC(q) = 20g, and Guinea (country 2) with total cost function TC(92) = 3092, where q, denotes the amount of bauxites generated by country 1 and 92 denotes the output level of country 2 (in thousand tons). Bauxites are used to produce aluminium. Assume that the world market demand for bauxites is given by the inverse demand function P(Q)= 150-Q. where prices are given in dollars and Q = q₁ +92 denotes the total amount of bauxites traded. Initially, Australia has exclusive rights for its more cost-efficient technology, and Guinea has initially no access to it. (a) (7 points) Suppose that both countries make sequential decisions about the amount of bauxites to be generated. Assume that Australia is the leader whereas Guinea is the follower. What is the residual demand of the follower? What is the marginal revenue of the follower? Find Guinea's reaction function. (b) (7 points) What is the residual demand of the leader given its anticipation of the follower's optimal reactions? Calculate the profit-maximizing output level of both countries, the market output and the market price. Calculate both producers profits and the total profit in this duopoly. (c) (7 points) Now assume that Australia's more cost-efficient technology is available to Guinea if it pays a license fee charged by Australia. If Australia sells its technology to Guinea, it will also lose its first-move advantage in output decisions. Consider the resulting Cournot competition game if Guinea pays some fixed fee F to Australia and adopts the superior technology. What will be the producers reaction functions, their equilibrium production levels, the total market output and the market price in this new situation after Guinea's technology adoption? What will be the producers' profits? (d) (7 points) Given your results from (c), compare both competitors' profits before and after the possible technology adoption by Guinea. What is the maximum fee that Guinea would be willing to pay for the superior technology? What is the minimum fee that Australia would be willing to accept for the license? Will these two rivals agree on a price for the license that is mutually beneficial? If yes, what is the possible range for the license fee? (e) (7 points) Given your results from (c) and (b), compare the social welfare on the global market before and after technology adoption by Guinea. Evaluate the overall outcome of technology adoption from the viewpoint of allocative efficiency, Suppose that there are only two bauxite-generating countries, Australia (country 1) with total cost function TC(q) = 20g, and Guinea (country 2) with total cost function TC(92) = 3092, where q, denotes the amount of bauxites generated by country 1 and 92 denotes the output level of country 2 (in thousand tons). Bauxites are used to produce aluminium. Assume that the world market demand for bauxites is given by the inverse demand function P(Q)= 150-Q. where prices are given in dollars and Q = q₁ +92 denotes the total amount of bauxites traded. Initially, Australia has exclusive rights for its more cost-efficient technology, and Guinea has initially no access to it. (a) (7 points) Suppose that both countries make sequential decisions about the amount of bauxites to be generated. Assume that Australia is the leader whereas Guinea is the follower. What is the residual demand of the follower? What is the marginal revenue of the follower? Find Guinea's reaction function. (b) (7 points) What is the residual demand of the leader given its anticipation of the follower's optimal reactions? Calculate the profit-maximizing output level of both countries, the market output and the market price. Calculate both producers profits and the total profit in this duopoly. (c) (7 points) Now assume that Australia's more cost-efficient technology is available to Guinea if it pays a license fee charged by Australia. If Australia sells its technology to Guinea, it will also lose its first-move advantage in output decisions. Consider the resulting Cournot competition game if Guinea pays some fixed fee F to Australia and adopts the superior technology. What will be the producers reaction functions, their equilibrium production levels, the total market output and the market price in this new situation after Guinea's technology adoption? What will be the producers' profits? (d) (7 points) Given your results from (c), compare both competitors' profits before and after the possible technology adoption by Guinea. What is the maximum fee that Guinea would be willing to pay for the superior technology? What is the minimum fee that Australia would be willing to accept for the license? Will these two rivals agree on a price for the license that is mutually beneficial? If yes, what is the possible range for the license fee? (e) (7 points) Given your results from (c) and (b), compare the social welfare on the global market before and after technology adoption by Guinea. Evaluate the overall outcome of technology adoption from the viewpoint of allocative efficiency,
Expert Answer:
Answer rating: 100% (QA)
a In a sequential decisionmaking framework Australia is the leader and Guinea is the follower The residual demand of the follower Guinea is obtained by subtracting the leaders Australias output from t... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Suppose that the market demand for concrete is given by the equation P = 300 1/3 Q, where Q is the total quantity, in yards, supplied by three existing firms. Assume that the three firms are...
-
Suppose that the market demand for cobalt is given by Q = 200 - P. Suppose that the industry consists of 10 firms, each with a marginal cost of $40 per unit. What is the Cournot equilibrium quantity...
-
The inverse demand for leather is given by P = 50 - 0.5Q. The industry supply of leather is determined by its marginal cost: MC = 0.45Q. Unfortunately, the production of leather causes noxious...
-
Write a program that takes an integer command-line argument n and prints all the positive powers of 2 less than or equal to n. Make sure that your program works properly for all values of n.
-
Children's Hospital of the King's Daughter in Norfolk, Virginia, introduced a new budgeting method that allowed the hospital's annual plan to be updated for changes in operating plans. For example,...
-
In Problem use matrices A through F. In Problem, perform the indicated operations when possible. FBT 1 2 1 1 A = 3 1 B = | 4 2 1 4 0 3 3 1 D=: 3 4 2 C = 1 5 1 E = 4 0. -1 3 F = 1 -1 -4 3. 3. 1. 3.
-
Ron Chambers arrives at work early on Friday morning. His anxiety has been growing throughout his final week of training with Mid-Town Office Products. Today Ron is going to work with his sales...
-
Nicolet Real Estate Company was founded 25 years ago by the current CEO, Steven Nicolet. The company purchases real estate, including land and buildings, and rents the property to tenants. The...
-
Kuala Lumpur Kepong Berhad stock currently sells for RM21.40 per share. The next expected annual dividend is RM0.80, and the growth rate is 4%. a. Find the expected rate of return on this stock. b....
-
The City of Castletons General Fund had the following post-closing trial balance at June 30, 2022, the end of its fiscal year: Debits Credits Cash $ 265,120 Sales Taxes Receivable 11,000 Taxes...
-
As one of the loan officers for Grove Gate Bank, calculate the monthly principal and interest, PI (in $), using this table and the monthly PITI (in $) for the mortgage. (Round dollars to the nearest...
-
Identify and describe the four major steps in forecasting financial statements.
-
One of Warren Buffett's acquisition criteria is to invest in businesses "earning good return on equity, while employing little or no debt." Why is Buffett concerned about debt?
-
Capital expenditures are usually an important cash outflow for a company, and they figure prominently into forecasts of net operating assets. What are the sources of information about capital...
-
What does the concept of financial statement articulation mean in the forecasting process?
-
When might a reduction in operating expenses as a percentage of sales denote a short-term gain at the cost of long-term performance?
-
Throughout the course, a number of case summaries will be due. These summaries (100-150 words each) will state in your own words the factual issue that led the parties to court, the judge's decision,...
-
San Carlos Bank and Trust Company uses a credit-scoring system to evaluate most consumer loans that amount to more than $2,500. The key factors used in its scoring system are found at the conclusion...
-
The following table shows the composition of US federal expenditures in 1997, 2001, 2007, and 2011. From 1997 to 2001, GDP went from $ 8.3324 trillion to $ 10.2862 trillion, the GDP price deflator...
-
Consider a society with three people (John, Eleanor, and Abigail) who use majority rule to decide how much money to spend on schools. There are three options for spending on a public park: H (high),...
-
In 2011, the Cuban government enacted an 8 percent tax on the purchase of real estate, with the tax split by the buyer and seller [Cave, 2011]. Is it likely that the tax will actually be split 50 50...
-
Under IFRS, income statements are required to show: A. Extraordinary items. B. Unusual items. C. Exceptional items. D. None of the above.
-
Set out in Figure 16.10 are summarized balance sheets and income statements for F Co. for 20X1 and 20X2. You are required to: Figure 16.10 a. prepare a table of ratios, covering all aspects of...
-
Earnings is calculated deducting: A. Dividends on ordinary shares. B. Dividends on preference shares. C. Tax expense. D. Interest expense.
Study smarter with the SolutionInn App