Info icon This preview shows pages 1–3. Sign up to view the full content.

1 I NTERMEDIATE M ICROECONOMIC T HEORY II P ROFESSOR C LAUDIA M. L ANDEO A SSIGNMENT 2 Due on Thursday, November 3, 2016 (Beginning of Class. Late Assignments Will NOT Be Accepted.) 1. Two software companies, Firm 1 and Firm 2 sell competing products. Let pi and xi be the price and quantity sold by Firm i, i = 1, 2. The demand functions for Firm 1 and Firm 2are given by x1 = 1000(90 1/2 p1 + 1/4 p2) and x2 = 1000(90 -1/2 p2 + 1/4 p1), respectively. For each firm, the cost of selling to an extra user is zero. Therefore, each company will maximize its profits by choosing the price that maximizes its total revenues. Suppose that the firms operate under Bertrand competition. a. What are the market prices? b. Are the firms enjoying market power? Explain. Suppose now that Firm1 sets its price first. After observing Firm 1’s price, Firm 2 decides its own price. c. What are the market prices? 2. Consider an industry that consists of two firms: Intercom (I) and Acme (A). The demand in this industry is p = 1 – q I – q A , and the two firms have cost functions of C I = ½ q I and C A = ½ q A . Assume the following strategic environment: Acme moves first and makes an announcement about its output level. It may announce that unless
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

2 the Intercom stays out of the market, it will drive the price to zero by producing an
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern