Monday, December 17, 2012

Today's Notes

Assume that there are two producers in the bottled water industry.  The producers are Sprouse Distributing and Kon's Kola. The current market price is $5 and each producer is making 2.5 units. 

1.  How much in total revenue is the industry making?
2.  How much profit is each firm making?

Is it possible for Sprouse Distributing to increase their profit?  Assume that the price effect is given by: dP(Q) and the quantity effect is given by dQ(P).  Assume that Sprouse increases her output to 3.5 units.

1.  What is Sprouse's total revenue now?
2.  How much is Kon's Kola?

When a firm is in an industry selling a homogeneous good, one firm can increase their profits by "cheating" on their agreement to keep output constant.  Given this incentive, how does OPEC continue to act like a cartel?

Assume that there are only two competitors in the digital download industry, Apple and Amazon.  When the price is $1 the quantity demanded is 200;  when the price is $0.5, the quantity demanded is 300.  Assume there are no costs and a winner take all market.  Use the payoff matrix below to determine price and output assume no tacit collusion.



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