Explain what is the lowest fc

Assignment Help Finance Basics

Reference no: EM1344385

Consider two firms engaging in sequential Stackelberg competition.

Consider firm 1 decides its quantity x1 first and firms 2 follows after observing x1. The demand function of the market is x(p) = 100 - 0.1p and the cost function for both firms are c(x) = FC + 5x2

a. Suppose first that FC = 0. Derive firm 2's best response function to observing firm 1's output level x1.

b. What output level will firm 1 choose?

c. What output level does that imply firm 2 will choose?

d. What is the equilibrium Stackelberg price?

e. Now suppose FC is not zero. What is the lowest FC at which firm 1 does not have to engage in strategic entry deterrence in order to keep firm 2 out of the market?

Reference no: EM1344385

Questions Cloud

Privilege to e-mail addresses in discount warehouse database : Checkout clerk with ____ privileges to e-mail addresses in discount warehouse database could view addresses but not change them.

External funding requirement : Your firm, Martin Industries, has experienced a higher than expected demand for its product line. The firm plans to expand its operation by 25% by spending $5,000,000 for an additional building.

Derive consumers demand functions : Let the competitive equilibrium prices be p1 and p2 respectively and derive both consumers' demand functions for both goods.

Return on equity with an increase in debt financing : Determine the implications of a change in the return on equity with an increase in debt financing?

Explain what is the lowest fc : Explain what is the lowest FC at which firm 1 does not have to engage in strategic entry deterrence in order to keep firm 2 out of the market?

What will the cash flows for this project be : The firm has a tax rate of 30 percent, an opportunity cost of capital of 0 percent, and it expects net working capital to increase by $93,000.00 at the beginning of the project.

Determine firms fundamental, or intrinsic value : What is a company's fundamental, or intrinsic, value? What might cause a company's intrinsic value to be different than its actual market value?

Code scheme to meet marketing managers requirements : Design a code scheme that will meet the marketing managers stated requirements.

Value of the tax benefits from depreciation : The cost of capital is 14 percent, and the firm's tax rate is 40 percent - Estimate the present value of the tax benefits from depreciation

User Account

All Pages