# Chap009 - Chapter 9: Answers to Questions and Problems 1....

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Chapter 9: Answers to Questions and Problems 1. a. D2. b. D1. c. i. \$20. ii. 0 units. iii. \$20 to \$50. 2. a. ( 29 1 1 2 2 2 1 100 12 1 22 0.5 2 2 2 2 2 a c Q Q Q Q b - - = - = - = - and ( 29 1 1 1 2 2 5 . 0 20 2 1 2 2 20 100 2 1 2 Q Q Q b c a Q - = - - = - - = . b. Q 1 = 16; Q 2 = 12. c. P = 100 – 2(28) = \$44. d. Π 1 = \$512; Π 2 = \$288. 3. a. 125 units. b. 100 units each. c. The leader produces 150 units and the follower produces 75 units. d. 150 units. e. i. 75 units. ii. About 112.5 units. 4. a. ( 29 1 20,000 4,000 1 1,600 0.5 2 2 2 5 2 F F L L L a c Q Q Q Q b - - = - = - = - . b. Q L = 1800; Q F = 700. c. P = 20,000 – 5(2500) = \$7,500. d. Π L = \$8.1 million; Π F = \$2.45 million. 5. a. Set P = MC to get 500 – 2Q = \$100. Solving yields Q = 200 units. b. P = MC = \$100. c. Each firm earns zero economic profits. 9-1

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6. a. Oil production. Each firm produces output independently and the market price is determined by the total amount produced. b. Diamond production. DeBeers is the leader that sets diamond production, and smaller firms follow with their own levels of production. c. Competitive bidding by identical contractors. In this case, the contractor bidding the lowest fee will win the contract. 7. Model Output Profits Cournot Q 1 = Q 2 = 58.30 π 1 = π 2 = \$6,805.56 Stackelberg Q L = 87.5; Q F = 43.75 π L = \$7,656.25; π F = \$3,828.13 Bertrand Market output = 175 units Zero Collusion Market output = 87.5 units Industry Profits = \$15,312.50 8. a. Firm 1’s output and profit would increase. Firm 2’s output and profits would decrease. b. For small changes in costs, there would be no change in output or profits. 9.
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## This note was uploaded on 02/06/2011 for the course ECON 415 taught by Professor Holland during the Summer '09 term at Purdue University.

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Chap009 - Chapter 9: Answers to Questions and Problems 1....

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