1460m1 - 2 , demand is low and given by P = 20 & Q: a....

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Economics 1460 Industrial Organization Fall 2007 Midterm Please answer all three questions. They all carry equal weight. Good luck! 1. Consider a market with n equal to zero. The demand on the market is given by P = 100 Q where Q denotes the total quantity sold on the market. Firms are Cournot i selects independently the quantity q i it sells on the market. F for entering the market. Compute the equilibrium number n n cost F . Comment. probability 1 = 2 , demand is high and given by P = 100 Q and with probability 1 =
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Unformatted text preview: 2 , demand is low and given by P = 20 & Q: a. Compute the monopoly price and pro&ts both when demand is high and when demand is low. b. Compute the average value of monopoly pro&ts (where the average is taken using the probabilities that demand is high or low). c. Consider a collusive strategy, where the two &rms agree to set the monopoly price after they observe the realization of demand. If one of the &rms cheats, a price war is triggered and both &rms make zero pro&ts afterwards. Compute the minimal value of the discount factor for which collusion can be sustained both when demand is low and when demand is high. Comment. 3. Describe the concentration indices CR k and HI . Explain why one expects to &nd a positive relation between collusion and concentration. Discuss the empirical tests which have been designed to analyze this relation. 1...
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This note was uploaded on 07/06/2009 for the course ECON 146 taught by Professor Campos-ortiz during the Fall '07 term at Brown.

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