Upturn Foods, Inc. and Knott Food, Inc. are the only two providers of meals for all...

   
 

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Upturn Foods, Inc. and Knott Food, Inc. are the only two providers of meals for all U.S. airlines. For most individuals (and tastes), the product of these two firms are considered the same. Therefore, the firms represent a duopoly with an undifferentiated (i.e. homogenous) product. Each company seeks to maximize profit, incurring a constant marginal cost of $4 per meal (MC-$4). Assume there are no fixed costs, and because MC is constant, average variable cost (AVC) is also equal to $4. The (inverse) market demand for airline meals is given by the function P = 100 - 2Q, where P is in dollars and Q is in millions of meals per month. Because there are only two companies in this market, total quantity in the market is given by Q = Qu + QK, where Qu is the number of meals Upturn Foods produces (in millions) and QK is the number of meals Knott Food, Inc. produces (in millions). Assume the companies simultaneously choose how many meals to produce, which means the market is a Cournot duopoly. Use this information to answer Part A below (NOTE: There are also parts B and C to this problem). PART A: a. When both companies set quantity simultaneously, the reaction function of Uptumn Foods is NOTE: Mark an "X" in the small box to the left of your chosen answer. Qu= 24-2QK QK = 24-2Qu Qu= 48 -0.5Qk Qx 480.5Qu Qu= 24-0.5QK QK = 24-0.5Qu Qu= 48-2QK QK = 48-2Qu and the reaction function of Knott Food is (2 pts.) f. What would be market price in this case? (3 pts.) Market Price: g. What would be the profit (in millions) of each company? (2 pts.) Upturn Foods Profit: PART C: Knott Food Profit: Suppose Upturn Foods and Knott Food acted as a cartel. h. In this case, and assuming each company produced the same amount, how many meals would each company produce per month? (3 pts.) Production by each company: i. What would be market price in this case? (3 pts.) Market Price: Upturn Foods, Inc. and Knott Food, Inc. are the only two providers of meals for all U.S. airlines. For most individuals (and tastes), the product of these two firms are considered the same. Therefore, the firms represent a duopoly with an undifferentiated (i.e. homogenous) product. Each company seeks to maximize profit, incurring a constant marginal cost of $4 per meal (MC-$4). Assume there are no fixed costs, and because MC is constant, average variable cost (AVC) is also equal to $4. The (inverse) market demand for airline meals is given by the function P = 100 - 2Q, where P is in dollars and Q is in millions of meals per month. Because there are only two companies in this market, total quantity in the market is given by Q = Qu + QK, where Qu is the number of meals Upturn Foods produces (in millions) and QK is the number of meals Knott Food, Inc. produces (in millions). Assume the companies simultaneously choose how many meals to produce, which means the market is a Cournot duopoly. Use this information to answer Part A below (NOTE: There are also parts B and C to this problem). PART A: a. When both companies set quantity simultaneously, the reaction function of Uptumn Foods is NOTE: Mark an "X" in the small box to the left of your chosen answer. Qu= 24-2QK QK = 24-2Qu Qu= 48 -0.5Qk Qx 480.5Qu Qu= 24-0.5QK QK = 24-0.5Qu Qu= 48-2QK QK = 48-2Qu and the reaction function of Knott Food is (2 pts.) f. What would be market price in this case? (3 pts.) Market Price: g. What would be the profit (in millions) of each company? (2 pts.) Upturn Foods Profit: PART C: Knott Food Profit: Suppose Upturn Foods and Knott Food acted as a cartel. h. In this case, and assuming each company produced the same amount, how many meals would each company produce per month? (3 pts.) Production by each company: i. What would be market price in this case? (3 pts.) Market Price: