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

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
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.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: a. What is the prot-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, nd 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 rms, 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 rms cost function is given by C = 10 + q ( q + 1) : Determine the values of the Cournot equilibrium. (ex 7.6) 1...
View Full Document

Ask a homework question - tutors are online