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Author Question: In year 2008, 1334 million lbs of milk was produced and sold in U.S. This is A) the decision of ... (Read 45 times)

newbem

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on: Jul 1, 2018
In year 2008, 1334 million lbs of milk was produced and sold in U.S. This is
 
  A) the decision of the U.S. department of agriculture.
  B) quantity determined by the interactions in the market.
  C) the maximum amount the producers could produce.
  D) what consumers needed.

Question 2

Suppose market demand is p = 10 - Q. Firms have a fixed entry cost of 5 and no marginal cost. If firm A is the incumbent, can it deter the entry of its rival, firm B?
 
  What will be an ideal response?


randomguy133

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Reply #1 on: Jul 1, 2018
Answer to Question 1

B

Answer to Question 2

Firm B's reaction function is qB = 5 - (1/2)qA. The Stackelberg leader quantity is 5 and firm B will produce 2.5. Firm A's profit is 12.5. If firm A produces 6 units for example, firm B's best response is
2 units; however, it would incur a loss and not enter. Firm A's profits by preventing entry would be 24. Thus, firm A can deter entry by overproducing.


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