Find company's price, output and profit.
Suppose there are only two automobile companies, Ford or Chevy.
Ford believes which Chevrolet will match any price it sets, but Chevrolet too is interested in maximizing profit. Use the subsequent price and profit data to answer the subsequent questions.
Ford
Selling
Price
Chevrolet's
Selling
Price Ford's
Profits
(millions) Chevrolet's
Profits
(millions)
$4,000 $4,000 $8 $8
4,000 8,000 12 6
4,000 12,000 14 2
8,000 4,000 6 12
8,000 10 10
8,000 12,000 12 6
12,000 4,000 2 14
12,000 6 12
12,000 12,000 7 7
a) Illustrate what price will Ford charge?
b) Illustrate what price will Chevrolet charge once Ford has set its price?
c) Illustrate what is Ford's profit after Chevrolet's response?
d) If the two companies collaborated to maximize joint profits, illustrate what price would they set?
e) Given your answer to part (d), how could undetected cheating on price cause the cheating company's profit to rise?
1) Discuss an company which would meet the conditions of a perfectly competitive company and how the individual companies would respond to an increase in the market demand for the product.
2) When developing short-run cost curves, it is supposed which all companies in perfect competition have the same cost curves and they all make identical short-run profits or losses. Contrast his to the real world and why individual companies might experience different cost curves and different profits.