PROBLEM 2 The inverse demand function is PQ 1Q In this mark

PROBLEM ?2 The inverse demand function is P(Q) = 1-Q. In this market there are two firms (firm1 and firm 2) with zero total cost functions. Firm is controlled by one owner who also gets share s e (0, 1) of profit of firm 2. Firm 2 is run by a manager, who maximizes profit of firm 2 and does not have any connection with the owner of firm1 a) Find and characterize Bertrand equilibrium (b) Find and characterize Cournot equilibriunm c)How does total output in Cournot equilibrium depend on s? Interpret. (d) Consider Stackelberg leadership situation. Under which firm\'s leadership will the total output be higher?

Solution

Liquidity represent the availability of cash and cash equivalent on hand by an individual or an organisation. Company having high liquidity can operate smoothly and can make payment to current liabilities on time. Too much high liquidity is also not good, because it represent idle cash and inability to an organisation to utilise the fund.

Solvency: Generally when the asset of the individual or an organisation are higher than its liabilities they are called solvent. So the solvent company will definitely able to pay his liability (cash obligations), but if they are having liquidity crisis (non availability of cash and cash equivalent on hand) they will not be able to pay the liabilities on time.