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Unformatted text preview: Econ 425‐100 Spring 2011 Instructor Fan Ji Homework 2 (50 Points Total) Name_______________ Due on March25th 2011 Part One (12 points) : Multiple Choice (2 points each) Choose the one alternative that best completes the statement or answers the question. #2 In the representative consumer model without PD model, a. In equilibrium, the number of firms is greater than the social optimum. b. All goods are considered perfect substitutes. c. If fixed costs are zero, there is no output inefficiency in equilibrium. d. All of the above. e. Only (a) and (b) are correct. Part Two: Short Questions (38 Points) Be clear about your answer and use GRAPH when necessary #1 (7 points) b. #2 a. Oligopoly Slide page 23, given all the conditions in class, try to derive all the results shown below step by step. (16 points) b. And in Oligopoly slide page 11 , show the step by step how to get profit when one is cooperate while another one is not. E.g. profit1 = 48.6 ; profit2=72.9. (8 points) #3 (7 points) One major criticism raised against the use of the Cournot oligopoly model is that firms normally choose prices, not quantities when they compete with each other. In that sense, the Cournot model is basically a “textbook example”. Is this true or not, give some example. ...
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