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Sergio [31]
2 years ago
15

Suppose that two identical firms produce widgets and that they are the only firms in the market. Their costs are given by C1 = 6

0Q1 and C2 = 60Q2, where Q1 is the output of Firm 1 and Q2 the output of Firm 2. Price is determined by the following demand curve:
P = 300 – Q
where Q = Q1 + Q2.

a. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this equilibrium.
b. Suppose the two firms form a cartel to maximize joint profits. How many widgets will be produced? Calculate each firm’s profit.
c. Suppose Firm 1 were the only firm in the industry. How would market output and Firm 1’s profit differ from that found in part (b) above?
d. Returning to the duopoly of part (b), suppose Firm 1 abides by the agreement, but Firm 2 cheats by increasing production. How many widgets will Firm 2 produce? What will be each firm’s profits?
Business
1 answer:
GaryK [48]2 years ago
8 0

Answer:

Consider the following calculations

Explanation:

a. π1 = P Q1 − C1 = (300 − Q1 − Q2 )Q1 − 60Q1 = 300Q1 − Q1^2 − Q1 Q2 − 60Q1

π2 = P Q2 − C2 = (300 − Q1 − Q2 )Q2 − 60Q2 = 300Q2 − Q1 Q2 − Q2^2-60Q2

Take the FOCs:

∂π/(∂Q1)= 300 − 2Q1 − Q2 = 0 ⇒ Q1 = 120 − 0.5Q2

∂π/(∂Q2)= 300 − Q1 − 2Q2 = 0 ⇒ Q2 = 120 − 0.5Q1

Q1 = 120 − 0.5[120 − 0.5Q1 ] = 60 − 0.25Q1 ⇒ Q1 = 80

Similarly find Q2 = 80 such that π1 = π2 = 6, 400.

b. The two firms act as a monopolist, where each firm produces an equal share of total output. Demand is given by P = 300 − Q, M R = 300 − 2Q, and M C = 60. Set M C = M R tofind that Q = 120 and Q1 = Q2 = 60, respectively. Therefore:

π1 = π2 = 180 × 60 − 60 × 60 = 7, 200.

c. It would be higher because they could make more money.

d. Firm 2 knows that Q1 = 60 and given the reaction function derived in part (a) firm 2 sets Q2 = 120 − 0.5 × 60 = 90. Overall, QT = 150 and P = 300 − 150 = 150. Hence:

π1 = 150 × 60 − 60 × 60 = 5, 400

π2 = 150 × 90 − 60 × 90 = 8, 100.

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2 years ago
Spade Agency separates its accounts receivable into three age groups for purposes of estimating the percentage of uncollectible
Natali5045456 [20]

Answer:

The total estimated uncollectible debt is $6000 as computed below

Explanation:

The total estimated uncollectible debt is computed as follows:

Accounts not yet due              $25000*4%    $1000

Accounts 1-60 days past due $10000*25%     $2500

Accounts more than 60 days  $5000*50%    <u>$2500</u>

Total estimated uncollectible debt                 <u>  $6000</u>

The necessary journal entry to record this estimate is shown below:

Dr bad debt expense                        $5000

Cr  Allowance for uncollectible debt           $5000

Even though $6000 is the estimated uncollectible, the implication is that the closing balance in allowance for uncollebtible debt should be $6000,since there is a credit of $1000 already in the account, the balance required to top it up to $6000 is $5000

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2 years ago
b. When launching a new brand, we discussed in lecture that it is best to build the brand first with PR, and then sustain it wit
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When launching a new brand, it is best to build the brand first with PR, and then with advertising is explained in the following way

Explanation:

In the past, almost every new brand was launched with a big advertising campaign. In today's media environment, that's not a good idea. Advertising is expensive and not very credible, especially when used on behalf of a new brand. That's why many of the most successful new brands were launched with PR.

Launching a new brand with PR, however, raises a number of questions.If no advertising agency is involved, who does the positioning strategy.

To stimulate your thinking about these ,here is an outline of six steps a PR launch might take.

1. The leak -A PR program usually starts with a leak to key reporters and editors. Internet sites are often favorite targets.

But no big brand has ever been successful in a category with no competition. The best thing that ever happened to Coca-Cola is Pepsi-Cola.

Not a good idea. The more competitors in a category, the larger the category. Competition creates enormous consumer interest in the category and stimulates a lot of PR.

Advertising is different. An advertising program is launched like a D-day attack. It's usually kept a top secret until the day the first ad runs.

It would have been better to let the PR run for a few months before launching the advertising. In turn, the ads could then focus on the success of the launch. (Nothing succeeds like success.)

2. The slow buildup

A PR program slowly unfolds like a flower blooming. A company has to allot enough time for the PR to develop momentum. That's why a PR launch often starts before the details of a new product or service are firmly fixed.

Advertising is different. An advertising program usually starts with a "big bang." Since consumers tend to ignore advertising messages, a new ad program needs to be big and bold enough to get above the "noise level."

3. The recruitment of allies

Why go it alone when you can get others to help communicate your message? The slow buildup of a PR program allows enough time to recruit allies to your cause.

Advertising is different. With a big-bang launch, there usually isn't enough time to line up supporters. Also, advertising alliances usually fall apart over the question of who pays for what.

4. Product modification

Feedback is an important element in a PR launch. By launching the PR program ahead of the actual product introduction, t

Advertising is different. Once a big-bang advertising program is launched, a company is committed.

5. Message modification

Feedback from a PR program also allows a company to modify the brand's message for greater consumer appeal.

6. The soft launch

PR versus advertising

In almost every way, the launch of a brand via PR is exactly the opposite of how a brand is currently launched with an advertising program.

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Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for the
klemol [59]

Answer:

As the WACC is more than 7.5%, option D is the correct answer.

Explanation:

The weighted average cost of capital or WACC is the cost of a firm's capital structure. To calculate the WACC, we multiply the weight of each component of the capital structure by the cost of that component. The components of capital structure can be one or all of the following namely debt, preferred stock and common stock.

The formula for WACC is,

WACC = wD * rD * (1-tax rate)  +  wP * rP  +  wE * rE

Where,

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  • r represents the cost of each component
  • D, P and E represents debt, preferred stock and common stock respectively

First we need to determine the cost of debt and equity for this firm.

We use the market value of debt and thus, rate for the calculation of WACC.

The cost of debt will be its yield to maturity as it is the current rate or cost. Thus, rD will be 6%.

The cost of equity can be determined using the constant growth model of DDM 's formula for prcie today.

P0 = D0 * (1+g) / (r - g)

80 = 5 * (1+0.05) / (r - 0.05)

80 * (r - 0.05) = 5.25

80r - 4 = 5.25

80r = 5.25 + 4

r = 9.25 / 80

r = 0.115625 or 11.5625%

WACC = 0.5 * 0.06 * (1-0.3)  +  0.5 * 0.115625

WACC = 0.0788125 or 7.88125%

As the WACC is more than 7.5%, option D is the correct answer.

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Answer: His district manager may be influenced by <u><em>availability bias. </em></u>

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