9781118041581

Answers to Odd-Numbered Problems 15

P $7 and QS15. The firm offers a price that is less than its value

($10), but high enough to induce an optimal supply.

*13. a. We know that P  660 16Q 1 and C  900 60Q 1 9Q 12. Setting

MR MC, we have 660 32Q 1  60 18Q 1 or Q 1 12. In turn, we

find P 1 $468. The firm’s profit is:

.

b. If 10 firms each produce 6 units, total output is 60 and the market

price is indeed P 1,224 (16)(60) $264. Setting firm 1’s MR 

MC implies 1,224 (16)(54) 32Q 1  60 18Q 1 , implying Q 1  6

units as claimed. Finally, the firm’s average cost is

.

The typical firm earns a zero economic profit since P AC.

c. Under perfect competition, PcACMIN. Setting AC MC, we have

900/QF 60 9QF 60 18QF, implying QF10 and ACmin

240. Thus, Pc$240 and Qc76.5 (240)/16 61.5. The number
     of firms is found by dividing total output by each firm’s output:
     61.5/10 6.15 firms.

Chapter 9

1. The conventional wisdom points to entry in loose oligopolies for two
   reasons: (i) the market offers positive economic profits (unlike a
   perfectly competitive market), and (ii) since the market is not
   dominated by large firms, a new entrant has the potential to reap
   significant market-share gain over time (unlike a tight oligopoly).


2. a. OPEC’s net demand curve is: QNQWQS(103.33 P/6) (.5P 
   10) 93.33 (2/3)P. Rearranging this, we have: P  140 1.5QN.
   b. Setting MR MC, we have 140 3QN20, or QN40 million
   barrels per day. In turn, P $80 and QS(.5)(80)  10 50 million
   barrels per day. OPEC accounts for about 44 percent (40/90) of world
   oil production.


3. a. For firm 1, MR 1 MC implies 120 5Q 2 10Q 1 60, or Q 1 
   6 .5Q 2. In equilibrium, Q 1 Q 2 so we can solve the above
   equation to find Q 1 Q 2 4 units.
   b. If the firms collude, they set MR  120 10Q 60, or Q 6 units.
   With total output split equally, each firm supplies 3 units.


4. a. Yes, there is a prisoner’s dilemma in the sense that when all farmers
   have large crops, they all make losses. One solution is for farmers to

C/Q[900(60)(6)9(6)^2 ]/6$264

5,6162,916$2,700

RC(468)(12)[900(60)(12)9(12)^2 ]

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