In Gelate, Pennsylvania, the market for compact discs has evolved as follows. There are two firms that each use a marquee to post the price they charge for compact discs. Each firm buys CDs from the same supplier at a cost of $5.00 per disc. The inverse market demand in their area is given by P=10-2Q=, where Q is the total output produced by the two firms.
a) Solve for the Bertrand equilibrium price and market output.
b) Would your answer differ if the products were not perfect substitutes? Explain.
Answer: a. P = MC = $5. To find industry output, we find Q such that P = 5 = 10 - 2Q. Solving for Q gives us industry output of 2.5 units.
b. When goods are perfect substitutes, firms are forced to charge a price equal to marginal cost, otherwise they sell nothing. However, if consumers view the goods as heterogeneous (differentiated products) a firm does not loose the entire market if it prices above another firm’s price.
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The official U.S. poverty line for a family is calculated by taking 3 times the annual cost of:
a. public housing. b. basic medical care. c. utilities and transportation. d. a minimal diet.
Which of the following is true?
a. Investment in the stock market is a relatively foolproof method for an investor to earn a high rate of return during the next five years. b. Current stock prices already reflect information that is known with a high degree of certainty. c. Experts are able to predict changes in the direction of the broad stock market indexes with a high degree of accuracy. d. While changes in the prices of specific stocks are difficult to predict, it is relatively easy to predict the future direction of the broad stock market. e. Both c and d are true.
Which group has the highest poverty rate from among these groups?
A. Children under 18 B. Persons over 65 C. White males D. Members of working class families
Through product differentiation, firms attempt to increase the
A. demands for their products, while making its demand less elastic. B. supply of elasticities of competing products. C. price-elasticity of demand for their products. D. marginal costs of their competitors' production.