{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

191ps4sol

# 191ps4sol - ECON191 Spring 2010 Outline of suggested...

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

1 ECON191 Spring 2010 Outline of suggested solutions to Problem Set 4 1) Given the market demand function B A Q Q P 10 , TC = 0 for both Firm A and Firm B Firm A Max. A B A Q Q Q 10 First order condition: 0 2 10 B A Q Q Reaction function for A: 2 5 2 2 10 B B A Q Q Q ………. (1) Firm B Max. B B A Q Q Q 10 First order condition: 0 2 10 A B Q Q Reaction function for B: 2 5 2 2 10 A A B Q Q Q ……….(2) Cournot equilibrium is obtained by solving (1) and (2): 3 10 * * B A Q Q , 3 10 3 10 3 10 10 P Profit for firm A 9 100 3 10 3 10 3 10 10 * * A Q P Profit for firm B 9 100 3 10 3 10 3 10 10 * * B Q P Cartel problem : Max Q Q 10 FOC: 0 2 10 Q 5 * Q 5 . 2 * * B A Q Q Price charged by cartel 5 10 * Q Profit made by each firm   2 25 2 5 5 2 * * Q P 2) Pindyck, Rubinfeld and Koh, p. 522, #7.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 2

191ps4sol - ECON191 Spring 2010 Outline of suggested...

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

View Full Document
Ask a homework question - tutors are online