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PROBLEM (2) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q². Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don't calculate each CS; just rank them); (i) (See textbook's Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MC's, hence the Best Response equations are symmetrical; hence there is a symmetric solution with qa = q³ =qc as the Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly "B+C", which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. (v) They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the "market supply" for the competitive market.

PROBLEM (2) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q². Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don't calculate each CS; just rank them); (i) (See textbook's Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MC's, hence the Best Response equations are symmetrical; hence there is a symmetric solution with qa = q³ =qc as the Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly "B+C", which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. (v) They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the "market supply" for the competitive market.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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
Chapter13: best-practice Tactics: Game Theory
Section: Chapter Questions
Problem 1E
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PLEASE SOLVE ONLY PART (iv): B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model.

PROBLEM (2) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q². Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don't calculate each CS; just rank them); (i) (See textbook's Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MC's, hence the Best Response equations are symmetrical; hence there is a symmetric solution with qa = q³ = qc as the Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly “B+C", which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. (v) They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the “market supply" for the competitive market.
Transcribed Image Text:PROBLEM (2) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q². Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don't calculate each CS; just rank them); (i) (See textbook's Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MC's, hence the Best Response equations are symmetrical; hence there is a symmetric solution with qa = q³ = qc as the Cournot-Nash equilibrium) (ii) They collude as though they are all plants of the same single multi-plant monopoly. (iii) B and C act as two plants of a single multi-plant monopoly “B+C", which competes in quantities (Cournot competition) against A. (iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model. (v) They act as perfectly competitive firms -as if trying to maximize total surplus and minimize DWL- that is, their joint MC serves as the “market supply" for the competitive market.
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