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Vitek1552 [10]
3 years ago
15

We can use the Cournot model to derive an equilibrium industry structure. For this purpose, we will define an equilibrium as tha

t structure in which no firm has an incentive to leave or enter the industry. If a firm leaves the industry, it enters an alternative competitive market in which case it earns zero (economic) profit. If an additional firm enters the industry when there are already n firms in it, the new firm's profit is determined by the Cournot equilibrium with n + 1 firms. For this problem, assume that each firm has the cost function: C(q) = 256 +20_q. Assume further that market demand is described by: P = 100 - Q. a. Find the long-run equilibrium number of firms in this industry. b. What industry output, price, and firm profit levels will characterize the long-run equilibrium?
Business
1 answer:
Nina [5.8K]3 years ago
5 0

Answer:

a. long run equilibrium numbers of firms in the industry are 4

b. Output of each firm will be 16

Explanation:

Under cournot’s equilibrium, the cost function of an individual firm is written as:

C(q) = F + cq

In our case, C(q) is given as

C(q) = 256 + 20q

Therefore, F = 256 and c = 20

At the same time, the demand function is written as:

P(Q) = a - bQ

In our case, P is given as

P = 100 – Q

Therefore, a = 100, b =1

a. Long run equilibrium number of firms in the industry

N = ((a-c)/(bF)^0.5) – 1

N = ((100-20)/(1*256)^0.5) – 1

N = (80/16) – 1 = 4

Therefore, long run equilibrium numbers of firms in the industry are 4

b. Output of each firm will be q = (a-c)/b*(1+N) = (100-20)/1*(1+4) = 80/5 = 16

Therefore, total output of industry is 16*4 = 64

Price = 100-64 = 36

Profit = Revenue – Cost

Revenue of each firm = Price * Output = 36*16 = 576

Cost = 256+20*16 = 576

Therefore, profit = 0

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Answer:

Vanishing Games Corporation (VGC)

1. Analysis of the effect of transactions on the accounting equation:

Assets  = Liabilities + Equity

Assets (Cash) increases +$52,500 and Assets (Accounts Receivable) decreases -$52,500 = Liabilities + Equity.

b. Assets (Cash) increases +$235,000 = Liabilities + Equity (Retained Earnings) increase + $235,000.

c. Assets (Equipment) increases +41,900; Cash decreases -$12,000 = Liabilities (Notes Payable) increase +$29,900 + Equity.

d. Assets (Cash) decreases -$15,600 = Liabilities + Equity (Retained Earnings) decrease - $15,600.

e. Assets (Cash) increases + $50,500 and (Accounts Receivable) increases + $50,500 = Liabilities + Equity (Retained Earnings) increase + $101,000.

f. Assets = Liabilities (Accounts Payable) increase +$5,900 + Equity (Retained Earnings) decrease -$5,900.

g. Assets (Cash) decreases - $310,000 = Liabilities + Equity (Retained Earnings) decreases - $310,000.

h. Assets (Supplies) increase + $5,100 = Liabilities (Accounts Payable) increase +$5,100 + Equity.

i. Assets (Cash) decreases - $5,100 = Liabilities (Accounts Payable) decrease - $5,100 + Equity.

2. Journal Entries:

a. Debit Cash Account $52,500

Credit Accounts Receivable $52,500

To record cash from customers.

b. Debit Cash Account $235,000

Credit Service Revenue $235,000

To record cash for service revenue.

c. Debit Equipment $41,900

Credit Cash Account $12,000

Credit Notes Payable $29,900

To record purchase of 10 new computer services

d. Debit Advertising Expense $15,600

Credit Cash Account $15,600

To record payment for advertising.

e. Debit Cash Account $50,500

Debit Accounts Receivable $50,500

Credit Service Revenue $101,000

To record subscriptions for services sold.

f. Debit Utilities Expense $5,900

Credit Utilities Payable $5,900

To record utilities expense.

g. Debit Wages & Salaries Expense $310,000

Credit Cash Account $310,000

To record wages paid.

h. Debit Supplies Account $5,100

Credit Accounts Payable $5,100

To record purchase of supplies on account.

i. Debit Accounts Payable $5,100

Credit Cash Account $5,100

To record payment on account.

3. T-Accounts:

                                             Cash Account

Beginning Balance       $2,360,000      c. Equipment                   12,000

a. Accounts Receivable       52,250      d. Advertising Expense 15,600

b. Electronic Arts, Inc.        235,000     g. Wages & Salaries     310,000

e. Service Revenue             50,500      i. Accounts Payable          5,100

                                       <u>                  </u>      Balance c/d             <u> 2,355,050</u>

                                        <u>2,697,750</u>                                        <u>2,697,750</u>

Balance b/d                     2,355,050

                                     Accounts Receivable

Beginning Balance        152,000           a. Cash                          52,250

e. Service Revenue        <u>50,500</u>           Balance c/d                 <u>150,250</u>

                                      <u>202,500</u>                                              <u>202,500</u>

Balance b/d                    150,250

                                        Supplies

Beginning Balance        19,100          Balance c/d                       24,200

Accounts Payable          <u> 5,100</u>                                                   <u>            </u>

                                     <u>24,200</u>                                                   <u>24,200</u>

Balance b/d                  24,200

                                       Equipment

Beginning Balance       948,000       Balance c/d                       989,900

c. Cash                            12,000

c. Notes Payable            <u>29,900</u>                                                <u>              </u>

                                     <u>989,900</u>                                                <u>989,900</u>

Balance b/d                  989,900

   

                                         Land

Beginning Balance    1,920,000

                                      Building

Beginning Balance     506,000

                                         Accounts Payable

i. Cash                               5,100         Beginning Balance           109,000

  Balance c/d                <u>109,000</u>         h. Supplies                            <u> 5,100</u>

                                     <u>114,100</u>                                                        <u>114,100</u>

                                                            Balance b/d                      109,000

                                       Unearned Revenue

                                                             Beginning Balance         152,000

                                         Advertising Expense

d. Cash                               15,600

                                         Utilities Expense

f. Utilities Payable                5,900

                                        Utilities Payable

                                                               f. Utilities Expense            5,900

                                        Wages & Salaries Expense

g. Cash                             310,000

                                         Service Revenue

                                                               b. Cash                             235,000

Balance c/d                       336,000         e. Cash                             50,500

                                        <u>               </u>        e. Accounts Receivable   <u> 50,500</u>

                                         <u>336,000</u>                                                 <u>336,000</u>

                                                               Balance b/d                      336,000

                                          Notes Payable (due 2018)

     Balance c/d           109,900           Beginning Balance            80,000

                                    <u>             </u>            c. Equipment                     <u>29,900</u>

                                   <u>109,900</u>                                                      <u>109,900</u>

                                                             Balance b/d                       101,000

                                           Common Stock

                                                              Beginning Balance     2,200,000

                                           Retained Earnings

                                                              Beginning Balance     3,364,100

4. Trial Balance as at January 31:

                                              Debit                  Credit

Cash                                  $2,355,050

Accounts Receivable              150,250

Supplies                                    24,200

Equipment                              989,900

Land                                     1,920,000

Building                                  506,000

Advertising expense                15,600

Utilities Expense                        5,900

Utilities Payable                                                 $5,900

Wages & Salaries                  310,000

Service Revenue                                             336,000

Notes Payable                                                  109,900

Accounts Payable                                            109,000

Unearned Revenue                                         152,000

Common Stock                                            2,200,000

Retained Earnings         <u>                    </u>           <u>3,364,100</u>

Total                               <u>$6,276,900 </u>        <u>$6,276,900</u>

Explanation:

a) Note: the adjustment of the Utilities could have been eliminated to produce the same result, with totals reduced by $5,900.

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