mathsperts4 - K consistent with n=500 &rms in...

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Mathsperts IV. Trade Unions in a Competitive Product Market. There are n c ( q ) = 4 q + 1 2 q 2 to produce output q: (i) Given market price p; q = q s ( p ) (ii) Suppose demand is given by q d = 1000 p: Find the competitive equilibrium where nq s ( p ) = q d ( p ) : How much does each outcomes depend on n ? > 0. K might describe the cost of setting up a distribution network, sta/ training etc. [A K cannot = K: Find the entry cost
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Unformatted text preview: K consistent with n=500 &rms in this equilibrium. (iv) Suppose an industry trade union forms and raises wages at all &rms by 10%. Thus each &rm±s cost functions rises to c ( q ) = 4 : 4 q + 0 : 55 q 2 : Find the competitive equilibrium with n = 500 : What happens to market price and total sales. Do &rms still make positive pro&t? Given the investment K is a sunk cost, do any &rms now exit the market? (v) Note the similarity in outcome to that of a monopoly: the trades union forces up prices by inducing a reduction in sales. The monopoly surplus, how-ever, goes to the union rather than to the &rms. 1...
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This note was uploaded on 12/31/2011 for the course ECON MR 102 taught by Professor Huyduong during the Winter '11 term at RMIT Vietnam.

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