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Assignment_4 - EC 501 Micro Assignment 4 Due in class 1...

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EC 501 Micro Assignment 4 Due 4/26/10 in class 1. 8.4 ("Two neighboring homeowners,..") 2. 8.10 ("In A Treatise on the Family..") 3. 15.6 ("Recall Example 15.6,..") 4. 15.8 ("Recall the Hotelling model..") 5. 15.12 ("This question will explore..") 6. Suppose there are n identical °rms, each with marginal cost c; that compete by simul- taneously bringing output y to the market (Cournot assumption). Show that L ( n ) = 1 " for n = 1 and that lim n !1 L ( n ) = 0 ; where " is the market demand elasticity and where L is the Lerner index. 7. Consider the following variant of Hotelling±s product di/erentiation model. Suppose that the consumers are uniformly distributed on a circle with perimeter d = 1 : Firms are also located on the circle, each selling a homogenous product. Each °rm has marginal cost c and also faces a °xed entry cost F: Firm i ±s pro°t is: ° i = ° ( p i ° c ) y i ° F if it enters 0 otherwise where y i is the demand it faces. Consumers want to buy one unit of the good and have a transport cost of t: Hence, the price facing a consumer who purchases from °rm i is p i + tx;
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