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Unformatted text preview: Blue-book – 25 out of 50 pts. (2 qns., 12 pts. each + 1) Answer these questions in your blue-book. Show your work and intermediate steps for partial credit. Points are split equally across all sub-parts. Your score will only be based on the marks in your blue-book. You will not receive any credit for anything written on your exam paper. You will receive 1 extra point for correctly writing your name, perm number, version (A,B,C, or D), and TA’s name on your blue-book. 1. Firms 1 and 2 are Stackelberg duopolists, with firm 1 being the leader and firm 2 the follower. They face an inverse demand of p = 1- Q , where Q = q 1 + q 2 is the total quantity supplied by the two firms. Both firms have a marginal cost of zero and no fixed costs. (a) Write down firm 2’s reaction function. q * 2 ( q 1 ) = Answer : q * 2 ( q 1 ) = 1- q 1 2 (b) Write down an expression for firm 1’s profits as a function only of q 1 (that is, without q 2 )....
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This note was uploaded on 05/08/2011 for the course ECON 100B taught by Professor Kilenthong during the Spring '08 term at UCSB.
- Spring '08