Assignment 3 Essay

842 Words Aug 20th, 2013 4 Pages
DEPARTMENT OF ECONOMICS

Economics 340H – FA 07 OSH Assignment #3

Instructor: Christopher Michael Due Date: Dec 6, 2007 Question 1 – Perfect Competition and Monopolistic Competition

Superior Metals Company has seen its sales volume DECLINE over the last few years as the result of rising foreign imports. In order to INCREASE sales (and hopefully, profits), the firm is considering a price reduction on luranium, a metal that it produces and sells. The firm currently sells 60,000 kilos of luranium a year at an average price of $10 per kilo. Fixed costs of producing luranium are $250,000. Current variable costs per kilo are $5. The firm has determined that the variable cost per kilo could be reduced by $0.50 if production
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Hint: The roots of the quadratic equation: are

Question 3 – Oligopoly

Two companies (A and B) are duopolists that produce identical products. Demand for the products is given by the following demand function:

P = 10,000 - QA - QB

where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are:

TCA = 500,000 + 200QA + 0.5QA2 TCB = 200,000 + 400QB + QB2

Assume that the two firms act independently as in the Cournot model (that is, each firm assumes that the other firm's output will not change). Determine the long-run equilibrium output and selling price for each firm.

Question 4 - Price Leadership – Monopolistic Competition and Oligopoly. Over the last century, The Boeing Co. has grown from building planes in an old, red boathouse to become the largest aerospace company in the world. Boeing’s principal global competitor is Airbus, a French company jointly owned by Eads (80%) and BAE Systems (20%). Airbus was established in 1970 as a European consortium of French, German and later, Spanish and U.K companies. In 2001, thirty years after its creation, Airbus became a single integrated company. Though dominated by Boeing and Airbus, smaller firms have recently entered the commercial aircraft industry. Notable among these is Embraer, a

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