TAKEHOMEF07 - Econ 160A(DUE WEDNESDAY 14TH OF November...

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Econ 160A (DUE WEDNESDAY 14 TH OF November) Problem 1 Answer True, False or Uncertain and explain why In the last fifty years there has been a huge increase in the amount of resources devoted to R&D in the pharmaceutical industry. This fact is key to understand the evolution of the long run (pharmaceutical) industry structure. The increase of competition in the electricity industry will cause a wave of mergers among the firms of the sector. The existence of a fixed capacity of production for all firms in a market implies that is impossible that a cartel can be formed. It is easier to get a collusive agreement that is a Subgame Perfect Nash Equilibrium if we consider that the firms play the same game N periods instead of 1. There were two major audio equipment dealers in New York in the 80s: Crazy Eddie and Newmark & Lewis. Crazy Eddie claimed in its ads that he is never going to be undersold. Newmark & Lewis promised to pay double the difference between its price and a competitor’s lower price. The strength of price competition in this sector increased consumer’s surplus of New Yorkers. Problem 2 Take the Bertrand model with two firms, A and B, and the same assumptions we made in class. The only difference is that Marginal Cost of Firm A is larger than Marginal Cost of firm B. Find a Nash equilibrium and justify it. (Don’t worry about uniqueness) Problem 3 Consider the Cournot model with N firms. The market demand is linear: p=a-bQ, where p
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This note was uploaded on 06/09/2008 for the course ECO 3133 taught by Professor All during the Summer '08 term at Yonsei University.

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TAKEHOMEF07 - Econ 160A(DUE WEDNESDAY 14TH OF November...

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