homework 3 - ECON 398 HOMEWORK 3 Professor Ozdenoren 1. In...

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ECON 398 HOMEWORK 3 Professor Ozdenoren 1. In a small town called Ham Harbour there are two shops. Wingerman’s has great cheese and Trader Moe’s has good wine. Demand for Wingerman’s cheese is given by Q W = 32 - 2P W - P M and demand for Trader Moe’s wine is given by Q M = 20 – 2P M - P W where Q W is pounds of cheese per day sold by Wingerman’s, Q M is cases of wines per day sold by Moe’s and P W and P M are prices in dollars for cheese and wine respectively. Suppose that a pound of cheese and a case of wine both cost 2 dollars to the shops. a. If both firms set their prices simultaneously, what are the equilibrium prices and profits for each shop? b. If the firms can set prices together (i.e., collude), what are the equilibrium prices and profits in this case? c. Compare this with the Donna’s and Pierce’s example solved in class. What is the main difference? 2. Suppose that a person owes $100 in taxes to the government. The person can either pay the $100 or cheat and pay nothing. The government can either audit this person or
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This note was uploaded on 04/02/2008 for the course ECON 398 taught by Professor Emre during the Spring '07 term at University of Michigan.

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homework 3 - ECON 398 HOMEWORK 3 Professor Ozdenoren 1. In...

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