This preview shows pages 1–2. Sign up to view the full content.
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 CournotNash 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?
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
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.
 Spring '08
 PECK
 Economics

Click to edit the document details