dse 2004

[seema]

consider a cournot duopoly with inverse market demand p=1-q1-q2, where p is the market price and qi is firm i's output. Suppose firm 1's cost fn is C1= cq1, where c belongs to [0,3/4] and C2= q2/2

Q- suppose firm 1 takes over firm 2 to become a monopolist and c=2/3. The new monopolist firm will produce ?

[anon_econ]

seema, he will always produce in the 2nd firm bcoz the marginal cost is lower there.

[seema]

thanks.!

suppose prior to the choices of quantities by the two firms,  Firm 1 can choose c by investing (9c^2-13c)/18. assuming that the firm chooses c anticipating Cournot qty competition thereafter, the optimal choice of c is ?

[duck]

Hi Seema.. :)

Maximise the profits of firm 1 wrt "c".
[Note: Substitute q1 = (3-4c)/6  , p = (3+2c)/6 as its given in the question that the firm anticipated cournot quantity competition]

You'll get c=1/2

[Chinni18]

Can someone please help with DSE 2004 Question 9.
The market shares of two Cournot dupolists have been derived as s1 = (3-4c)/(3-2c) and s2 = 2c/(3-2c)
Why would this outcome NOT be pareto efficient from the point of view of the two firms?

[aditi5000]

You know what, I was thinking the same thing. It's definitely not pareto efficient from the society's POV because it's not the "efficient" output (perfect competition) but is it really pareto inefficient from the firms' perspectives??

[Chinni18]

Then in that case it is inefficient from the firm's perspective also because they could do better by being monopolists.. Is that plausible you think?

[Chinni18]

I have a doubt in DSE 2004, Q.21.

If w=W/P is the real wage rate, where W is nominal wage and P is price level, demand for labour is D(w)=1-w, supply of labour is S(w)=w.
W is always such that it minimises |D(W/P)-S(W/P)| subject to the constraint W>= Wo where Wo is exogenously given minimum wage rate.
Given the price level P. the nominal wage W is ?

Correct answer: max{Wo, P/2}

Why is this the answer? Any inputs would be appreciated

[aditi5000]

Yes, I think the thing you said about monopoly makes sense, that's probably why the situation is pareto inefficient from the perspective of the firms (and society).

Hey about question 21, when we equate dd and ss of labour, we get w = W/P = 1/2 ie this is the real wage. so nominal wage W = P/2 (ie market determined prevailing wage rate)
But the exogenous min. subsistence wage is Wo
So the firm will pay out whichever is more between P/2 and Wo ... that's because if the price levels are high and p/2>wo, workers only care about getting real wages i.e. p/2
and on the other hand, if the min wage level exceeds the real wage ie w0>p/2, the firm still has legal obligation to pay out the minimum wage of W0 and thus they can't pay out only the real wage level

[Chinni18]

Wonderful explanation, thank you so much Aditi!! I get it now  I was thinking it should be minimum but I see my mistake now. Thank you!!

[aditi5000]

You are welcome Chinni

[tim]

hi duck cn u pls elaborate in that queestion of cournot duopoly...part c) whr r v supposed to substitute the value of q=3-4c/6 and p=3+2c/6.
i mean cn u show d working