Econ 200 Practice Final Solution

Econ 200 Practice Final Solution - Suggested Answers 2004...

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Suggested Answers: 2004 Final Exam (see old problem set solutions for problems 1-3) 4. The f rm solves the following maximization problem: max q 1 ,q 2 ( P ( q 1 ) c 1 ) q 1 + β ( P ( q 2 ) c ( q 1 )) q 2 The f rst order conditions yield: P ( q 1 )+ P 0 ( q 1 ) q 1 c 1 βc 0 ( q 1 ) q 2 =0 P ( q 2 P 0 ( q 2 ) q 2 c ( q 1 )=0 While the second equations is the standard requirement that marginal rev- enue equals marginal cost, in the f rst equation there is an extra term that captures the e f ect of f rst period output on second period cost. Since that term is positive, we have that marginal revenue is less than marginal cost in the f rst period, so there will more output than if there were no learning by doing. The monopolist produces extra output to be able to produce at a lower cost in the second period. 5.a ) The downstream f rm solves: Max Q s Q s (100 5 Q s ω ) (1) The f.o.c. is Q s : (100 10 Q s ω and 1 Q s = 100 ω 10 Hence, the downstream f rm’s demand is Q ω ( ω )= 100 ω 10 or ω = 100 10 Q ω b) The upstream f rm solves
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This note was uploaded on 07/18/2008 for the course ECON 200 taught by Professor Philiphaile during the Spring '08 term at Yale.

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Econ 200 Practice Final Solution - Suggested Answers 2004...

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