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# 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) 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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