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Consider Cournot competition with n identical firms. Suppose that the inverse demand function is linear with P(X) = a - bX, where X is total industry output, a; b > 0. Each firm has a linear cost function of the form C(x) = cx, where x stands for per firm output. It is assumed that a > c.
a. At the symmetric equilibrium, what are the industry output and price levels? What are the equilibrium per firm output and profit levels? What is the equilibrium social welfare (defined as the difference between the area under the demand function and total cost)?
b. Now let m out of n firms merge. Show that the merger is profitable for the m merged firms if and only if it involves a pre-merger market share of 80 percent.
c. Show that each of the (n - m) non merged firms is better off after the merger.
d. Show that the m-firm merger increases industry price and also lowers consumer welfare.
A study by the centers of disease control (CDC) found that 23.3% of smokers are adults and that roughly 70% of those who do smoke indicate that they want to quit (Associated Press, July 26, 2002).
Show that the rate of population growth has no effect on the equilibrium growth rate of the economies studied in Sections 11.1 and 11.2. Explain why. Do you find this prediction to be plausible?
Two people take turns removing stones from a pile of n stones. Each person may, on each of her turns, remove either one or two stones. The person who takes the last stone is the winner; she gets $1 from her opponent.
ABC is considering using the facility for a new training program. It could also rent a building about the same distance from its headquarters for $20,000 a year. A developer has offered ABC $2.5 million for its property.
A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives are as follows: A B C Installed cost $10,000 $15,000 $20,000 Uniform annual benefit 1,625 1,625 1,890 Useful life in years 10..
Compare this answer to your answers to parts (a) and (d). What does this example tell you about Laspeyres and Paasche price indexes?
What will happen to the amount of apples and oranges that you choose to consume? Explain.
Briefly explain whether you agree with the student's reasoning.
According to Ms. Wizard, The equilibrium price of used 1999 Zephyrs will be $2,000 in Sourland but $2,600 in Sweetland.
Suppose the total market value of all final goods and services produced this year in economy X is $4 million. Of the $4 million worth of goods, $3 million is sold and $1 million is held in inventory. For this year, the GDP for economy X is
What were the aggregate supply shocks to the American economy during the 1970s and early 1980s How did these shocks affect interpretation of the Phillips Curve What are the characteristics of the long-run Phillips Curve
The accounting and marketing departments have provided you with the following information about the per-unit costs and demand for Type A bolts: Materials and labor are obtained in a competitive market on an as-needed basis
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