Why are the price and output of firms 1 and 2 the same but, Ask an Expert

Economics

Suppose there are three firms with the same individual demand function. This function is Q = 1,000 - 40P. Suppose each firm has a different cost function. These functions are:

Firm 1: 4,000 + 5Q

Firm 2: 3,000 + 5Q

Firm 3: 3,000 + 7Q

a) What price should each firm charge if it wants to maximize its profit (or minimize its loss)?

b) Why are the price and output of firms 1 and 2 the same but different for firm 3?

c) Is fixed cost relevant in their price determination or not?

d) Discuss the advantage and disadvantage of cost structure between firm 1 and firm 3.

e) Suppose that price falls as a result of a price war. The two most likely prices as a result are $13 and $12. Which company, firm 1 or firm 3, is more vulnerable to price war when P = $13?

f) Which company, firm 1 or firm 3, is more vulnerable to price war when P = $12?

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M967602

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