P7 - ECO 310 Fall 2008 Problem Set 7 Oligopoly Due in class...

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Unformatted text preview: ECO 310, Fall 2008 Problem Set 7: Oligopoly Due in class on December 2 Question 1 Consider a Cournot duopoly with homogeneous products. The inverse demand function is given by P = ( q 1 + q 2 )- 3 / 2 . Each firm’s marginal cost is constant and equal to c > 0. (a) Find expressions for the Cournot equilibrium price, total quantity, and profit (as functions of c ). (b) Verify that as c increases, each firm’s profit increases. What is the eco- nomic intuition for this? Question 2 There are two goods, whose quantities are denoted by q 1 , q 2 and prices by p 1 , p 2 . The demand functions are q 1 = 2- p 1 + kp 2 , q 2 = 2 + k p 1- p 2 . Here k is an algebraic constant (parameter) whose value is somewhere in the range- 1 < k < 1. Each good is produced by one firm. The marginal cost of production of each good is constant and equal to 1. (a) For what range of possible values of k are the two goods substitutes?...
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P7 - ECO 310 Fall 2008 Problem Set 7 Oligopoly Due in class...

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