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I’m working on a economics multi-part question and need a sample draft to help me understand better.

due tim: at 9:00 on April 22, 2021, please follow the setp and provide the sample draft


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1. Dominant Firm Theory
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Problem Set 2
Due at 9:00 on April 22, 2021
Suppose demand for wind turbines is Q = 110-3P, where P is the price. The dominant
producer in this industry is “Winnie’s Wind Turbines”. There are also a number of small
price-taking firms that can be represented by the supply function S(P)=P-10. The marginal
cost of production for the dominant firm is given by mcd=10 and the total cost function is
given by 10qd.
a. Derive the residual demand curve for the dominant firm
b. What quantity would Winnie’s Wind Turbines supply in the wind turbine market?
c. What would be the price for a wind turbine?
d. What quantity would the fringe supply in the wind turbine market?
2. Strategic Competition
Suppose Toyota and Honda both plan to develop a new all-electric car, with no
comparable counterpart on the market. If one firm enters the market, it will be a
monopoly and earn monopoly profits. The other manufacturer will suffer losses (they will
not recover their research and development costs). Finally, if neither firm enters the status
quo will be preserved. Profits for each under the various scenarios are shown below,
Don’t Enter
Don’t Enter
a. What are the Nash equilibria? Are the companies indifferent among the equilibria?
Now suppose that Toyota is the incumbent firm in the all-electric car market and facing
the possible entry of Honda, a competitor. Toyota must choose whether to invest in
capacity to deter entry by Honda. Once Honda observes Toyota’s investment level, it
decides whether or not to enter the market, knowing that it will incur fixed entry costs K,
upon entry. Profits to Toyota are 8 if Honda does not enter when investment is high and
9 when investment is low. If the Honda does not enter, it receives a payoff of 0. If Honda
enters then payoff are {6,5-K} when investment was low and {4, 3-K} when investment
was high.
b. At what values of K will Toyota choose low capacity investment? Why?
c. At what values of K will Toyota choose high capacity investment? Why?
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© Jessoe2020
3. Austin’s Autos
Austin’s autos is currently the sole producer of cars. Its cost function is 𝐶𝐶(𝑞𝑞) = 36 + 3𝑞𝑞,
and the market demand function is D(P)=83-P. There is a large pool of potential entrants,
each of which has the same cost function as Austin. Assume the Bain-Sylos postulate. Let
the incumbent firm’s output be denoted qI.
Derive the inverse residual demand function for a new firm in terms of qI and qE?
b. Given that the incumbent firm is currently producing qI, if a potential entrant was to
enter, how much would it produce?
c. Find the limit price. Hint: Find the output for Austin such that the slope of a new firm’s
average cost curve equals the slope of a new firm’s residual demand curve.
d. Suppose instead of assuming Bain-Sylos, we now assume active firms expect to
achieve a Cournot solution. Does entry depend on qI? Will there be entry?

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University of California Davis

society problem

wind turbines

total cost function

investment level

dominant firm theory

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