h11_ans - The Colorado College Department of Economics and...

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1 The Colorado College Department of Economics and Business Block 7 Econ 207 HW 11 ans. 1. (a) The Nash equilibrium is for both to price low as that is the dominant strategy for both firms. (b) It can re-labeled as “Low Price” as “High Output” and “High Price” as “Low Output.” (c) Q = 10,000 – 1000P 1000P = 10000 – Q P = 10 – Q/1000 TR = PQ = 10Q – Q 2 /1000 MR = d(TR)/dQ = 10 – Q/500 A perfect cartel would behave like a monopolist i.e. would maximize profits where MR = MC. 10 – Q/500 = 6, implying Q = 2,000. Substituting Q = 2,000 into the demand curve, 2,000 = 10,000 – 1,000 P, implying P = 8. Industry profit = (8-6)(2,000) = 4,000. Consumer surplus = (2,000)(10-8)/2 = 2,000. P =MC = 6. Corresponding Q = 10000 – 1000(6) = 4000. Deadweight loss = ½(8-6)(4000-2000) = 2000. 2. Q = 120 – P P = 120 – Q = 120 – q A -q B TR A = Pq A = 120q A – q 2 A - q A q B MR A = d(TR A )/dq A = 120 - 2q A - q B MR A = MC => 120 - 2q A - q B = 30 For Firm A, 90 – 2q
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h11_ans - The Colorado College Department of Economics and...

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