In the aeronautical market, Boing and Airbus constitute a duopoly in the production of large airplanes. The American firm has the following cost structure C(qa) = 20 + 3qa + qå, and the European firm, C(qe) 150 – P, answer the following questions. = 50 + qe + q². If the market demand for large airplanes is given by Qp = qa + qe = a) Interpret the cost structures of both firms b) What would be the equilibrium (quantity, price, and profit) if firms compete by quantity as in Cournot and interpret your answer. c) If they decide to form a cartel, what are the new quantities, prices, and profits? Interpret your answer using the Game Theory insights.

In the aeronautical market, Boing and Airbus constitute a duopoly in the production of large airplanes. The American firm has the following cost structure C(qa) = 20 + 3qa + qå, and the European firm, C(qe) 150 – P, answer the following questions. = 50 + qe + q². If the market demand for large airplanes is given by Qp = qa + qe = a) Interpret the cost structures of both firms b) What would be the equilibrium (quantity, price, and profit) if firms compete by quantity as in Cournot and interpret your answer. c) If they decide to form a cartel, what are the new quantities, prices, and profits? Interpret your answer using the Game Theory insights.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

ChapterB: Differential Calculus Techniques In Management

Section: Chapter Questions

Problem 2E

See similar textbooks

Similar questions

Ajax Cleaning Products is a medium-sized firm operating in an industry dominated by one large firmâ€”Tile King. Ajax produces a multiheaded tunnel wall scrubber that is similar to a model produced by Tile King. Ajax decides to charge the same price as Tile King to avoid the possibility of a price war. The pnce charged by Tile King is $20,000. Ajax has the following short-run cost curve: TC=800,0005,000Q+100Q2 Compute the marginal cost curve for Ajax. Given Ajaxs pricing strategy, what is the marginal venue function for Ajax? Compute the profit-maximizing level of output for Ajax. Compute Ajaxs total dollar profits.
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) Required. Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market.? 2. Now consider two cases: (i) Company is effectively able to price discriminate in the two markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit…
ASAP PLZ You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms’ products are viewed as identical by most consumers. The relevant cost functions are C(Qi) = 2Qi, and the inverse market demand curve for this unique product is given by P = 650 −3 Q. Currently, you and your rival simultaneously (but independently) make production decisions, and the price you fetch for the product depends on the total amount produced by each firm. However, by making an unrecoverable fixed investment of $1,800, Taurus Technologies can bring its product to market before Spyder finalizes production plans. (Assume Taurus Technologies is the leader in this scenario.)What are your profits if you do not make the investment? $ ____What are your profits if you do make the investment?Instructions: Do not include the investment of $1,800 as part of your profit calculation. $ ____ Should you invest the $1,800? multiple choice Yes - the benefits of establishing…
Question Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) Now consider two cases (i) Company is effectively able to price discriminate in the two markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging the same price in the two markets what are the profit maximizing levels of price, output, and the total profits? c. Analyze, with graphs, the two alternative pricing strategies…
KidzPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. James, who owns and runs KidzPoses, expects to encounter an average of eight customers per day, each with a reservation price (shown in the following table). Assume James has no fixed costs, and his cost of producing each portrait is $12. Customer Reservation Price ($ per photo) 1 50 2 46 3 42 4 38 5 34 6 30 7…
The inverse market demand eurve for a Covid-19 mask is given by P(y) = 120 – 2y , and the total cost function for any firm in the industry is given by TC(y) = 4y • What will be the total output and price if there are two Cournot firms competing in the industry? • What would be the total output and price if two firms have decided to collude?
PakPerfect Inc. estimates equation of its total costs of production as TC = 500 + 10Q + 5Q2 and market demand for its product as Qd = 105 – (1/2) P, where Q is quantity in units and P is price in Pak$. Write the equations of the firm’s costs, as a function of Q: Average Total Cost ATC Average Variable Cost AVC Average Fixed Cost AFC Given above costs can you determine what will be the firm’s production in Stage 1? What is the breakeven price and breakeven quantity for this firm? What is the shutdown price and quantity for this firm? Draw the firm’s costs in a graph as per your determination in (a). Label the breakeven and shutdown price and quantity using information in (b) and (c) above. Given the market price of Pak$ 50 how many units should the firm produce? how many firms are competing in this market in short-run? How many firms will be in the industry in the long-run? How do you interpret the profit or loss condition of PakPerfect? Use a two-panel graph of the Market and…
Presently, APlus Transport and Big Movers are the only suppliers of services that haul heavy construction equipment between jobs within the Midwest. No other suppliers have the equipment necessary to perform the service. The market inverse demand for these hauling services is given below. P-4,030-40 where P is price per trip and Q is total number of trips per year. For simplicity, also assume that neither firm has fixed costs. From company records, you are given the following variable cost function for each firm: TVC,=300, TVC, - 800 a. Assume these two competitors operate as a two-firm Cournot duopoly. Find the reaction functions for each firm. b. Calculate the Cournot market equilibrium price-output solutions for each firm including their respective profits. c. Suppose Big Movers shuts down operations so that APlus now has a monopoly in this market. What is the price, quantity, and profits for APlus after this change? d. Summarize the results of your findings over the two possible…
2. You are the Southeastern Michigan regional manager at Coca-Cola, responsible forproduction and pricing in the Metro Detroit area. Your primary competitor is Pepsi. The marketresearch team at Coca-Cola is thinking about launching a new product, Orange Vanilla Coke, toboost the brand. The cost function to produce a 12-pack of 12 fl. oz. cans of Orange VanillaCoke is C(qcoke) = 0.25qcoke and the market research team has estimated inverse market demandfor a 12-pack of this new “pop” in Southeastern Michigan to be P = 10.25 – 0.00025Q. a. Assuming Pepsi decides not to produce a similar product, allowing Coca-Cola to maintainmonopoly power in the market for orange vanilla cola, what price and quantity will youchoose to maximize profit? How much profit does Coca-Cola earn?b. What price and quantity you would choose to maximize profit if Pepsi spies discover yourproduct before launch, allowing Pepsi to produce and launch an identical product at the sametime. For your answer, assume the cost…
Attempt all questions. Q1. a) A local Pepsi company has total costs of production given by the equation TC-500+10q+Sq2. This implies that the firm's marginal cost is given by the equation MC 10+10q. The market demand for cold drink is given by the equation QD-105 (1/2)*P. Write the equations showing the company's average total cost and average variable cost and average fixed cost, each as a function of q. Show the firm's MC, ATC and AVC on one graph. What is the breakeven price and breakeven quantity for this firm in the short run? What is the shutdown price and shutdown quantity for this firm in the short run? If the market price of the output is $50, how many units will this firm produce? iv) Assuming the cold drink industry is perfectly competitive, what output would be produced by the firm in long-run equilibrium? What would be the long-run equilibrium price? i) ii)
A major software developer has estimated the demand for its new personal finance software package to be Q=1,000,000P-2 while the total cost of the package is C = 10,000+ 25Q. If this firm wishes to maximize profit, what percentage markup should it place on this product where percentage markup is defined as 100*(sale price - marginal cost)/marginal cost? 4. a. b. C. d. e. ANS: 90% 100% 20% 40% 250%
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) b. consider two cases: (i) Company is effectively able to price discriminate in thetwo markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit maximizing levels of price,output, and the total profits? c. Analyze, with graphs, the two alternative pricing strategies available to the company.