PS11Sol - Econ 301 Intermediate Microeconomics Prof. Marek...

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Econ 301 Intermediate Microeconomics Prof. Marek Weretka Solutions to problem set 11 (due Tuesday, May 1st, before class) Problem 1 (Oligopolistic Industry) a) Big four index (concentration ratio) of the beer industry in the USA is given by CR = 36 : 8% + 19 : 1% + 18 : 5% + 9 : 2% = 83 : 6% b) Such industry is oligopolistic as CR > 40% c)Trade Commission is likely to block the merger to protect the consumers from the monopolistic behavior of the beer producers. Problem 2 (Aircraft industry) B ( y B ) = (200 y A y B ) y B 20 y B and hence it has a shape of a parabola B ( y B ) = 80 y B ( y B ) 2 b) No, given y A = 100 ; the optimal production is y B = 40 jets. The best response of Boeing to Aribus production is y A 100 50 0 R B 40 65 90 c) Best response function is . R B ( y A ) = 90 1 2 y A d) The best response function for Airbus is symmetric, and is given by 1
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R A ( y B ) = 90 1 2 y B e) The optimal production solves the two best response functions simultaneously
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PS11Sol - Econ 301 Intermediate Microeconomics Prof. Marek...

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