Author Question: Suppose that market demand can be represented as p = 100 - 2Q. There are 10 identical firms ... (Read 149 times)

pane00

  • Hero Member
  • *****
  • Posts: 579
Suppose that market demand can be represented as p = 100 - 2Q. There are 10 identical firms producing an undifferentiated product, each with the total cost function TC = 50 + q2. Compare the competitive outcome with the cartel outcome. What is the individual firm's incentive to cheat on the cartel?
 
  What will be an ideal response?

Question 2

In the short run, a competitive firm has a marginal product of labor, MPL = 5L-0.5. The output price is 10 per unit and the wage is 7 per hour. The short-run labor demand curve for the firm is
 
  A) 5L-0.5.
  B) 15L-0.5.
  C) 35L-0.5.
  D) 50L-0.5.


yotaSR5

  • Sr. Member
  • ****
  • Posts: 331
Answer to Question 1

Each firm has MC = 2q, so that market supply is Q = 5p or joint MC = Q/5. As a cartel, they set joint MR = joint MC yielding 100 - 4Q = Q/5 or 100 = 4.2Q. Q = 23.8, and each firm will produce 2.38 units. The cartel price is 100 - 2(23.8 ) = 52.38. Each firm has the incentive to cheat because its marginal cost is 4.76 and the market price is 52.38. In a competitive market, supply equals demand. p = 100 - 2(5p) or 11p = 100. Price equals 9.09 and output equals 45.45 units.

Answer to Question 2

D



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Recent studies have shown that the number of medication errors increases in relation to the number of orders that are verified per pharmacist, per work shift.

Did you know?

It is difficult to obtain enough calcium without consuming milk or other dairy foods.

Did you know?

An identified risk factor for osteoporosis is the intake of excessive amounts of vitamin A. Dietary intake of approximately double the recommended daily amount of vitamin A, by women, has been shown to reduce bone mineral density and increase the chances for hip fractures compared with women who consumed the recommended daily amount (or less) of vitamin A.

Did you know?

In 1885, the Lloyd Manufacturing Company of Albany, New York, promoted and sold "Cocaine Toothache Drops" at 15 cents per bottle! In 1914, the Harrison Narcotic Act brought the sale and distribution of this drug under federal control.

Did you know?

In inpatient settings, adverse drug events account for an estimated one in three of all hospital adverse events. They affect approximately 2 million hospital stays every year, and prolong hospital stays by between one and five days.

For a complete list of videos, visit our video library