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# ECON2410 QUESTION 5 A market has 5 firms. One firm has a market share of 50%, a second 35%, and the other three 5% each. What is the Herfindahl index for this market? Based on your result, determine...

ECON2410

QUESTION 5
A market has 5 firms. One firm has a market share of 50%, a second 35%, and the other three 5%
each. What is the Herfindahl index for this market? Based on your result, determine the intensity of
price competition.

QUESTION 9
Explain how incumbents can erect strategic ba
iers (i.e. what should an incumbent
firm do to deter entry or hasten exit by competitors).

QUESTION 12
Suppose two firms (Firm 1 and Firm 2) are producing a product. The total demand is: Q = 100 – P,
where Q = Q1 + Q2. Each of the two firms has the cost function TC = 20Q. Based on the information
given, calculate the equili
ium P, Q, Q1, Q2, Profit1 and Profit2 under monopoly (collusion), Cournot,
and Stackelberg. For the Stackelberg model, assume that Firm 1 is the leader and Firm 2 is the
follower. Show all your workings to gain full marks.

QUESTION 14
The Cournot and Bertrand models make dramatically different predictions about the quantities, prices
and profits that will arise under oligopolistic competition. Explain the two ways of reconciling the two
models.

QUESTION 15
Suppose the demand curve for product x is given by Qx = XXXXXXXXXXPx)² -
0.02(Py)³. What is the cross-price elasticity of demand x with respect to y when Px =

QUESTION 16
The use of the SSNIP (Small but Significant Nontransitory Increase in Price) test presents some
difficulties when it is to be used in non-merger investigations. One of the difficulties is refe
ed to as
the “cellophane fallacy”. Explain the main argument under the cellophane fallacy.
QUESTION 18
Building a competitive advantage based on a superior cost position is likely to be attractive when
three conditions are met. Explain the three conditions.
QUESTION 21
Suppose a firm has \$300 million to invest in a new market. Given market uncertainty, the firm
forecasts a high-scenario where the present value of the investment is \$600 million, and a low-
scenario where the present value of the investment is \$200 million. Assume the firm believes each
scenario is equally likely. Suppose that by waiting, the firm can learn with certainty which scenario will
arise. If the firm waits one year and learns that high scenario will happen, its expected net present
value of investment is \$141.5 million. Using the above information, calculate: (a) the annual discount
ate; and (b) the difference in the expected net present value of investment between waiting a year
and then invest and investing today.

QUESTION 5
QUESTION 9
QUESTION 12
QUESTION 14
QUESTION 15
QUESTION 16
QUESTION 18
QUESTION 21
Answered Same Day Jul 08, 2021 ECON2410 University of Queensland

## Solution

Komalavalli answered on Jul 08 2021
Q5
Herfindahl-Hirschman Index (HHI) =s12​+s22​+s32+s42+s52
s1 –Market share of firm 1 is 50%, s2 –Market share of firm 2 is 35%, s3 –Market share of firm 3 is 5%, s4 –Market share of firm 4 is 5%, s5 –Market share of firm 5 is 5%,
HHI = (50)2+(35)2+(5)2+(5)2+(5)2
= 2500+1225+25+25+25
= 3800
We get HHI as 3800 which is greater than 2500 indicating that the market is highly concentrated one. The market is said to be oligopoly and top 2 firms has influence on production of output in the market, these firms have influence on determining the products price.
Q9)
An incumbent firm can use predatory acts i.e illegal act of setting lower price inorder to deter entry or exit by competitors.
Q12)
Q = 100 – P, where Q = Q1 + Q2
TC = 20Q
Equili
ium under monopoly (collusion)
Under collusion both firm produces equal quantity of output Q1=Q2
Q = 2Q1
Q1 = 100 – P1
P1=100 – Q1
TC = 20Q1
Profit = Q1(100 – Q1) - 20Q1
Profit = Q1(100 – Q1) - 20Q1
First order condition
0 = 100-2Q1-20
2Q1 =80
Q1 = Q2 =40
Substituting Q1 in P1 equation, we get
P1 = 100-40
P1 =P2=60
Substituting Q1 and P1 in profit equation, we get
Profit = 40*60-20*40
= 2400-800
Profit1 = Profit2 =1600
Therefore under monopoly P1-60,P2-60,Q1-40,Q2-40, Profit1-1600,Profit2-1600
Equili
ium under Cournot
Under Cournot
Q = Q1 + Q2
P=100 – Q1-Q2
Profit1=...
SOLUTION.PDF