# What are the profit maximizing prices and quantities for the two markets?

Problems 2-4 Two firms have an undisputed undisturbed government-given duopoly to sell high qualit Show more Problems 2-4 Two firms have an undisputed undisturbed government-given duopoly to sell high quality spaghetti. Quantities are in millions of kg of pasta annually and prices are in cents per kg. The market inverse- demand for spaghetti is given by PD = 1000 4QD. Q = q1 + q2. 2 Assume that both firms face a constant marginal cost of 20. Firm 1 is the leader and decides output knowing what the follower would do given its decision. Using the profit function prove that the Stackelberg output is q1 = 122.5 q2 = 61.25. 3 What is the resulting market price and profit for each firm in (2)? 4 Now assume that neither one leads or follows like a Cournot problem. Firm 1 faces a constant marginal cost of 20 but firm 2 faces a MC = 20 + 0.2q2 TC = 20q2 + 0.1q22. There are no fixed costs all capital costs at this point are sunk forever and are highly specific. Find the Nash equilibrium price and quantity for both firms assuming that everyone knows everyones costs. 5 Going into a multi-period game and hoping to get a monopoly in the long run Firm 1 anticipates that Firm 2 may not be able to survive if it sets P = 19 and floods the market. Explain why Firm 1 is wrong. 6 A monopoly firm sells the same energy bar in two markets that have the demands P1=800-2Q1 and P2=200-Q2. suppose the firm is efficient has no fixed cost and is able to sell at different prices in the two markets if it wishes. A. if the marginal cost of energy bars is constant at $0 what are the profit-maximizing prices and quantities for the two markets? Are these prices discriminatory? B. If the marginal cost for energy bars is constant at $100 What are the profit maximizing prices and quantities for the two markets? C. If the marginal cost for energy bars is constant at $200 what are the profit maximizing prices and quantities for the two markets? 7 In the 1990s congress eased the reporting that corporations were required to make and weakened their accountability by making officers less liable for overly optimistic earnings forecasts and by making it harder for shareholders to bring lawsuits against managements. Congress also opposed Financial Accounting Standards Board rules to treat stock options as an expense. Give a plausible explanation for why congress might weaken regulation in these ways. 8 Go to the following website to see the Domestic Market Share of Leading U.S. Airlines Between January and December 2014. For the domestic market share calculate both the HHI index and the C4 assuming this data is correct and represents market shares (The website is not very specific about what share here is although the BTS has some statistics which make this more apparent). You can denote the other as 2 you do not have to compute other. What would happen to each index if Spirit and Alaska merged? http://www.statista.com/statistics/250577/domestic-market-share-of-leading-us-airlines/ Show less