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Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman
Edition 6ISBN: 978-0073523149Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman
Edition 6ISBN: 978-0073523149 Exercise 3
ANALYZING MANAGERIAL DECISIONS: Entry Decision
In the simple Cournot model, firms make their output choices simultaneously. In practice, firms sometimes make these kinds of decisions sequentially.
Suppose that you manage one of the firms discussed in the Output Competition example in the text. The industry demand in this example is P = 100 - Q and the MC of each firm is zero.
Suppose that each firm must make an upfront investment of $1,000 to enter the market and that your competition has already paid this investment and chosen to produce 50 units. This investment is nonrecoverable (sunk). Should you make the $1,000 investment and enter the market If so, how much should you produce and what are your profits Continue to assume that your firm will survive for only one production period.
In the simple Cournot model, firms make their output choices simultaneously. In practice, firms sometimes make these kinds of decisions sequentially.
Suppose that you manage one of the firms discussed in the Output Competition example in the text. The industry demand in this example is P = 100 - Q and the MC of each firm is zero.
Suppose that each firm must make an upfront investment of $1,000 to enter the market and that your competition has already paid this investment and chosen to produce 50 units. This investment is nonrecoverable (sunk). Should you make the $1,000 investment and enter the market If so, how much should you produce and what are your profits Continue to assume that your firm will survive for only one production period.
Explanation
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Cournot model defines an industry in whi...
Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman
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