econ105_10s_ps5

# econ105_10s_ps5 - Problem Set 5(Due date Nov 5th ECON105...

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Problem Set 5 (Due date : Nov 5 th ) ECON105 Industrial Organization and Firm Strategy Professor Michael Noel University of California San Diego 1. Two firms, located at either end of a linear city, compete in prices. Each firm has constant marginal cost equal to c. Each consumer i has unit demand, and receives utility of u ij = v - p j - tz ij if she buys from firm j located a distance of z ij away at price pj. She receives utility equal to zero if she does not buy. a. If not the whole market is served in equilibrium, find the equilibrium price and profits for each firm. Do profits rise or fall with an increase in t? b. If the whole market is served in equilibrium, find the equilibrium price and profits for each firm. Do profits rise or fall when t increases? c. Give the economic intuition why the sign of dπ a. and part d. (Optional and not counted towards the grade:) Repeat a. and b. using the utility function u ij =1-pj-z ij and assuming marginal costs are zero to each firm. Ignore the questions

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econ105_10s_ps5 - Problem Set 5(Due date Nov 5th ECON105...

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