Econ_106P_HW1_summer08

Econ_106P_HW1_summer - UCLA ECONOMICS 106P SUMMER 2008 E McDEVITT HOMEWORK#1(DUE at the BEGINNING of class July 8 Tuesday DOMINANT FIRM MODEL

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UCLA ECONOMICS 106P SUMMER 2008 E. McDEVITT HOMEWORK #1 (DUE at the BEGINNING of class, July 8, Tuesday) DOMINANT FIRM MODEL Consider Alcoa (aluminum) as the dominant firm in an industry consisting of itself and many other small firms. The market demand is given by Q M = 2600-P. The supply curve for the fringe firms is Q FF = -1400 + P and the marginal cost function for the dominant firm is MC = 400 + Q D . a. Find the dominant firm’s residual demand curve. b. Find price, dominant firm output and fringe firm output in this industry. c. What does the residual demand curve look like when the fringe firm supply curve becomes perfectly elastic (horizontal)? Justify your answer with a graph and assume that the fringe firm supply curve becomes perfectly elastic at $1400. Find dominant firm output, price and fringe firm output. COURNOT MODEL Assume a market demand of P = 12 –Q and that there are two identical firms in the industry. Marginal cost is constant at $3 and there are no fixed costs. a. Derive the reaction functions. Find quantities, price and profit for each firm in the Cournot model.
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This note was uploaded on 07/29/2008 for the course ECON 106P taught by Professor Mcdevitt during the Summer '08 term at UCLA.

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