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Unformatted text preview: Y are, Px and Py respectively. Question 1 [15 Marks] a. What is the optimal consumption of X & Y? b. What level of utility is conferred by this bundle of goods if income is R200, Py = 2 and Px = 4? Question 2 [5 Marks] a. How does one decide in general if goods X & Y are complements or substitutes? b. Can you say whether X & Y are substitutes or complements in the situation above? The following information refers to questions 3 and 4: • Inverse Demand Curve: P = a – bQ • Number of firms: 2 • Cost structure: Firms have differentiated marginal costs: c1 for firm 1 and c2 for firm 2. Furthermore, c1 > c2. Question 3 [18 Marks] Assume that the market is operating in a Stackelberg Framework. a. Calculate the reaction function for firm 2 the follower. [6] b. From (a) above find the quantity outputs for the two firms. [12] Question 4 [12 Marks] Assume that the market is operating in a Bertrand Framework. What will the market outcome be, in terms of price, quantity and market share? Explain why. Total marks for Question 1: 50 2...
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This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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