Assume that there are four firms supplying a homogenous product. They have identical cost functions given by C(Q) =40 Q. If the demand curve for the industry is given by 100 , find the equilibrium industry output if the producers are Cournot competitors. What would be the resultant market price? What are the profits of each firm?
In a Cournot competition, firms strategically choose their quantity of output to maximize their profits, taking into account the expected response of other firms in the market. To analyze this scenario, we can follow these steps:
1. Demand Curve:
The demand curve for the industry is given by the equation \(P(Q) = 100 - Q\), where \(P\) is the market price and \(Q\) is the total industry output.
2. Cost Function:
The cost function for each firm is \(C(Q) = 40Q\), where \(C\) is the total cost and
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Explain Arrow’s Impossibility Theorem
Explain Arrow’s Impossibility Theorem
Consider the pay-off matrix of a game given below:
| Player 1 | Player 2 | ||
|
| I | O | |
| A | 1,1 | 3,3 | |
| N | 2,4 | 4,2 | |
Envelope theorem
Hidden information
Sita expects her future earnings to be worth Rs. 100. If she falls ill, her expected future
earning will be Rs 25. There is a belief that she may fall ill with probability of
2/3 while the probability of remaining in good health is 1/3
Let her utility function be given as U(y) = y^(1/2)
suppose that an insurance company offers to fully insure sita against loss of earnings
caused by illness against an actuarially fair premium.
(a) Will Sita accepts the insurance. Explain.
(b) What is the maximum amount that Sita would pay for the insurance?
Consider the pay-off matrix of a game given below: