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101A_problemset5

# 101A_problemset5 - Econ 101A Problem Set 5 Due in class on...

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Econ 101A — Problem Set 5 Due in class on Th 23 April. No late Problem Sets accepted, sorry! This Problem set tests the knowledge that you accumulated mainly in lectures 19 to 22. The problem set is focused on monopoly, oligopoly, and game theory. General rules for problem sets: show your work, write down the steps that you use to get a solution (no credit for right solutions without explanation), write legibly. If you cannot solve a problem fully, write down a partial solution. We give partial credit for partial solutions that are correct. Do not forget to write your name on the problem set! Problem 1. Monopoly, Oligopoly, and Perfect Competition (46 points) In this problem you are asked to compare the outcomes of monopoly, oligopoly, and perfect competition in one market. We are going to assume very simple functional forms in order to simplify the algebra. We assume that the fi rm has a very simple cost function: c ( y ) = cy, with c > 0 . The marginal cost of production therefore is constant. As for the market demand, we assume that it takes the simple linear form p ( Y ) = a bY, with a > c > 0 and b > 0 , where Y is the total production on the industry. 1. Consider fi rst the case of perfect competition . Derive the marginal and average cost curves. How does the supply curve look like for each fi rm? What about in the industry? (aggregate the individual supply curve over

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101A_problemset5 - Econ 101A Problem Set 5 Due in class on...

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