191hw4-09

191hw4-09 - the two firms Compute the Cournot equilibrium...

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Econ 191 Spring 2009 Francis Lui Problem Set 4 Due Date: April 7, 2009: 1:20 pm. 1) Let there be 2 firms, A and B, in a market of the same good. Suppose that it is completely costless to produce the good, and no other firms can enter into the market due to legal restrictions. The demand function of the market is given by P = 10 – (Q A + Q B ), where P is the market price, Q A and Q B are outputs of firm A and firm B, respectively. Assume that the two firms act independently. Derive the reaction functions of
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Unformatted text preview: the two firms. Compute the Cournot equilibrium outputs and profits of these two firms. Let the two firms come together to form a cartel. What price will the cartel charge? What is the quantity produced by each firm if they equally share the market? What are the profits made by the firms? 2) Pindyck, Rubinfeld and Koh, p. 522, #7. 3) Pindyck, Rubinfeld and Koh, p. 523, #9. 4) Pindyck, Rubinfeld and Koh, p. 523, #10a and #10b....
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