ECON425_HW2_Answer

ECON425_HW2_Answer - Econ HW 2 Short Answer#1 Multiple...

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Unformatted text preview: Econ HW 2 Short Answer #1 Multiple Choice 1 a 2d 3e 4d 5b 6e #2 Short Questions 1a. 1b. #2 MC = AC = 28c, Q = 1,000 – 1,000p a. Monopoly : MR= MC, Total Revenue : PQ = (1‐0.001q)q = q‐0.001q^2 MR = 1‐0.002q=MC=.28 => q=Q =360 , p =64c , profit = pq ‐ q*AC = 129.6 Consumer surplus = ½ * (1‐price)*Q = ½ * 36c *360 = 64.8 Cournot Duopoly: p = 1‐0.001q According to the slides, the best response function is q1 = 360 – q2/2, q2 = 360 – q1/2, in equilibrium, q1=q2=q =240. Q= 480, p= 52c , etc. Stackelberg Duopoly : According to the slides, qa is the leader and qb is the follower. Competition: Check the slides, p = mc = 28c. #2b While firm 1 is cooperating ( producing at half the monopoly output), firm 2 is not ‐‐‐ producing at its best‐response function given firm 1’s production. so firm1’s output is q1 = 1//2 * 360 = 180. firm 2 maximize its profit by max : profit = pq ‐ .28q, where p =1‐0.001Q = 1 ‐0.001 ( q +180) q2 = 270 Q= 450 , P =55c. Profit1 = 180 * (P‐AC) =48.6 profit2 = 270 * (p‐AC) = 72.9 #3 ...
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This note was uploaded on 05/01/2011 for the course ECON 425 taught by Professor Watugala during the Spring '06 term at Texas A&M.

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