1460p2 - Economics 1460 Industrial Organization Fall 2007...

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 2 (due October 12) with c 1 < c 2 be the equilibrium price on the market? (Hint: I do not expect a formal answer, but explain your intuition carefully.) 2. A formula which is often used to assess market power is the "Lerner for- mula" : L = H " where " is the price elasticity of demand, H H = P n i =1 s 2 i where s i and L the Lerner index given by L = P n i =1 s i p MC i p : Consider a linear P = 1 Q . Verify cost, c 1 = c 2 = c: Then show that the formula still holds when the two c 1 < c 2 : 3. Empirical evidence from the US airline industry suggests that fare wars
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Ask a homework question - tutors are online