Explain what you are doing and show your work in the numerical problems, and provide a brief but complete answer to the discussion questions. You should draw graphs for each problem to help guide your analysis
Question 1. Intel is a monopolist manufacturing computer chips with a competitive fringe of firm that act as price takers of the price Intel sets. The market willingness to pay for the P80 chip is given by p = 400-Q, with p in dollars per chip and Q in thousands of chips per month. The fringe marginal cost curve is MCF = 40 + .5QF (with QF and MCF also in thousands of chips and dollars per chip, respectively), and Inters marginal cost of producing chips is constant at $50 per chip. Intel is planning its strategy to set the P80 chip price
(a) Determine the residual demand Intel facts after accounting for the quantity supplied by the competitive fringe for any level of price.
(b) How many P80 chips will Intel supply per month?
(c) What is the resulting world P80 chip price?
(d) How many P80 chips are supplied by the competitive fringe?
Question 2. You and another firm are a duopoly supplying the market for bread in Davis. The inverse aggregate demand you both face is p = 10 - .001Q. You are firm 1, and your marginal cost of making bread is $2 per loaf, so MCt = 2; while your competitor has marginal cost of MC2 = 1, or $1 per loaf. You are both engaged in Coumot competition.
(a) What is your reaction curve?
(b) What is your competitors reaction curve?
(c) What are the equilibrium quantities supplied to the market by each firm in the Cannot equilibrium, and at what price?
Question 3. The City of Davis decides to subsidize your bread making operation since you arc based in Davis, and the cost of doing business is higher heir. The subsidy is $0.50 per loaf of bread. Your competitor, who is based in Woodland, does not receive this subsidy. I-tow do the price of bread and quantities supplied by each of you change?
Question 4. Now suppose that you and your competitor in Problem 2 decide to collude and coordinate your production to maximize your joint profits; i.e., you act as a two-plant monopoly. What are the resulting total quantity supplied to the market., equilibrium price, and profits earned by each firm? (Assume that you and your competitor distribute the profits between yourselves so that each of you makes as mach as under Commit competition, and any extra profits from collusion are split equally between the two of you.) Note: The subsidy is still in effect.
Question 5. There are two major gasoline retailers in Davis, L and F. They face the same inverse demand curve for gasoline, given by p = 5-.5Q, where p is in dollars per gallon and Q is thousands of gallons sold per month. L is a Stackelberg leader with marginal cost MCL = $0.20 per gallon while F is the follower and has MCF = $040 per gallon.
(a) What is firm Fs reaction curve?
(b) What is each firm's profit-maximizing output?
(c) What is the market price under this Stackelberg competition?