EC207_final - The Colorado College Department of Economics...

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1 The Colorado College Department of Economics and Business Block 7 – Econ 207 Final. Time: 3 hours. Late submissions are subject to reduction of points Please abide by and sign the Honor Pledge. Turn in question paper along with answer booklet. Good luck. 1. Consider two duopolists – firm 1 and firm 2 operating under Cournot model. The market demand and total cost functions are as follows: P = 100 - 0.5(Q 1 + Q 2 ) where Q 1 is the quantity produced by firm 1 and Q 2 by firm 2. C 1 = 5Q 1 C 2 = 0.5Q 2 2 (a) Obtain the reaction function for each firm (3+3 = 6 points) (b) Next calculate the equilibrium levels of quantities produced by each firm. (2 points) (c) What is the optimal price charged by each firm? (1 point) (d) Calculate the corresponding level of profits for each firm. (3 points) 2. Using the same market demand function and the total cost functions for both firms as in question 1 above, assume the firms behave in Stackelberg manner. (a) Calculate the equilibrium quantities produced by each firm assuming firm 1 as the
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EC207_final - The Colorado College Department of Economics...

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