Econ805final.01

Econ805final.01 - Department of Economics The Ohio State University Final ExamEcon 805 Profs Levin Morelli and Peck Directions Answer all questions

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Department of Economics The Ohio State University Final Exam–Econ 805 Profs. Levin, Morelli, and Peck March 13, 2001 Directions: Answer all questions, and show all work. Answer parts I and II in separate booklets. Part I: (33 points, questions 1 and 2) 1. (18 points) Consider a duopoly industry. The market inverse demand is given by P ( q )= 1 ¡ q ,where q = q 1 + q 2 is total industry output and where q 1 and q 2 are the outputs of …rm 1 and …rm 2, respectively. Both …rms have constant marginal cost functions denoted by c 1 and c 2 . It is common knowledge that c 1 =: 0 .E x ante, …rm 2’s costs are random, where c 2 =0 with probability 1 2 ,and c 2 =1 with probability 1 2 . (Firm 2 observes its own costs, while …rm 1 only knows the ex ante distribution.) (a) Solve for te Cournot-Nash equilibrium of the simultaneous move game. Namely, what are q 1 ;q 2 (0) ; and q 2 (1) ? What is the expected price? What are the expected pro…ts of the two …rms?
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This note was uploaded on 07/17/2008 for the course ECON 805 taught by Professor Peck during the Spring '08 term at Ohio State.

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Econ805final.01 - Department of Economics The Ohio State University Final ExamEcon 805 Profs Levin Morelli and Peck Directions Answer all questions

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