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Two firms compete in a homgeneous product market where the inverse demand function is P=10-2Q(quantity is measure in millions). Firm 1 has been in business for one year, while firm 2 just recently entered the market. Each firm has a legal obligation to pay one year's rent of $1 million regardless of its production decision. Firm 1's marginal cost is $2, and firm 2's marginal cost is $6. The current market price is 48 and was set optimally last year when firm 1 was the only firm in the market. At present, each firm has a 50 percent share of the market.
a. Why do you think firm 1's marginal cost is lower than firm 2's marginal cost?
b. Determine the current profits of the the two firms.
c. What would happen to each firm's current profits if firm 1 reduced its price to $6 while firm continued to charge $8?
d. Suppose that, by cutting its price to $6, firm 1 is able to drive firm 2 completely out of the market. After firm 2 exits the market, does firm 1 have an incentive to raise its price? Explain.
e. Is firm 1 engaging in predatory pricing when it cuts its price from $8 to $6? Explain.
Give a brief summary of economic costs. In the short-run, why might a firm still operate even when there is a loss.
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Question: Do brief research on ASEAN Economic Community (AEC) and discuss on the following questions: How does the AEC affect the multinational firms investing in AEC members? What is the effect of AEC on the U.S. economy?
Angelica pickles manager a Quick copy franchise White Plains, New York. Pickles projects reducing copy 5¢ to 4¢ each, Quick Copy's $600-per-week profit contribution will increase by one-third.
Estimate the linear demand equation
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