Econ 100A PS5 - Department of Economics University of...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 100A-Spring 2007 Page 1 Problem Set 5 D e p a r t m e n t o f E c o n o m i c s Spring 2007 University of California, Berkeley Prof. Woroch Economics 100A PROBLEM SET 5 Due: Thursday, May 3, 2007, 8:00 AM (in lecture) TRUE or FALSE : For each statement below, decide whether it is true or false and provide assumptions you find necessary to come to that conclusion. 1. In a Bertrand duopoly with a homogenous good, an increase one firm’s marginal cost will result in an increase in both firms’ equilibrium prices. 2. If each new breakfast cereal brand must pay a fixed “slotting allowance” to get space on the shelves of grocery stores, then the number of brands in a monopolistically competitive industry will fall, and the market share of surviving brands will increase. 3. When the prisoners’ dilemma is repeated infinite number of times, the likelihood of a cooperative outcome occurring as a Nash equilibrium is greater when the players place no value on payoffs beyond the current period. DIFFERENTIATED DUOPOLY: Suppose two brewers—Anheuser and Busch—each sell a single brand called A and B, respectively. With uncharacteristic insight, American beer drinkers discern that the two beers are identical, and consequently they sell for the same price. Let (inverse) demand for beer be given by: P(q A , q B ) = 120 – q A – q B . Each firm faces zero marginal costs but has non-sunk fixed costs of F = 900. a) Show that Anheuser’s reaction function is given by: R A (q B ) = 60 – ½q B . b) Draw the reaction function curve for each firm firm with q A on the x-axis and q B on the y-axis. c) Solve for the Cournot equilibrium. Show this point on your graph. Anheuser and Busch decide to differentiate their brews and American beer drinkers take notice. As a result, demand for the two beers are different, given by the following (inverse) demand curves: P A (q A , q B ) = 120 – q A – bq B and P B (q B , q A ) = 120 – q B – bq A where 0 < b < 2. As before, both brewers face zero marginal cost and have non-sunk fixed cost of F = 900.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/15/2010 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.

Page1 / 4

Econ 100A PS5 - Department of Economics University of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online