1460p1 - a What is the pro³t-maximizing price per does of...

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Economics 1460 Industrial Organization Fall 2007 PROBLEM SET 1 (due September 26) 1. There are three main suppliers of commercial jet engines &Pratt ± Whit- ney, General Electrics and Rolls Royce. All three maintain extensive sup- port sta/at major (and many minor) airports throughout the world. Why doesn²t one ³rm service each airport? Why do they all feel they need to provide support and service worldwide themselves? Why don²t they sub- contract their work? Why don²t they leave it entirely to the airlines? (ex 3.4) 2. After spending 10 years and $1.5 billion, you ³nally have gotten Food and Drug Administration approval to sell your new patented wonder drug which reduces the ache and pain associated with aging joints. You will market this drug under the brand name Ageless. Market research indicates that the elasticity of demand of Ageless is 1.25 (at all points on the demand curve). You estimate the marginal cost of manufacturing and selling one dose of Ageless at $1.
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Unformatted text preview: a. What is the pro³t-maximizing price per does of Ageless? b. Would you expect the elasticity of demand you face for Ageless to rise or fall when your patent expires? (ex 5.5) 3. For each of the following games, ³nd the dominant strategies (when they exist) and compute the Nash equilibria: L R U 2 ; 2 ; 1 D 1 ; 1 ; 1 L R U ; 1 ; 2 D 2 ; 1 & 1 ; & 1 L R U ; & 2 ; 5 D 3 ; & 4 & 1 ; & 1 4. Consider a market for a homogeneous product with demand given by Q = 37 : 5 & p= 4 : There are two ³rms, each with constant marginal cost equal to 40 . a. Determine the output and price under a Cournot equilibrium. b. Compute the e¢ ciency loss as a percentage of the e¢ ciency loss under monopoly. (ex 7.5) 5. Consider a duopoly for a homogeneous product with demand Q = 10 & p= 2 : Each ³rm²s cost function is given by C = 10 + q ( q + 1) : Determine the values of the Cournot equilibrium. (ex 7.6) 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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