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)
a) Pro°t function is given by
°
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
y
A
=
y
B
= 60
y
=
y
A
+
y
B
= 120
p
(120)
=
200
°
120 = 80
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 Spring '08
 Hansen
 Microeconomics, Monopoly, lim, best response

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