Quiz 5 Solution - Quiz 5 Solution 1. DD : P=500-y: where 3...

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Unformatted text preview: Quiz 5 Solution 1. DD : P=500-y: where 3 2 1 y y y y + + = 3 2, 1, , 100 100 = = ⇒ = i MC y TC i i Firm 1’s residual demand function: 1 3 2 1 ) 500 ( y y y p--- = ,. 1 3 2 1 2 1 1 3 1 2 1 1 2 500 500 y y y MR y y y y y y TR--- = ⇒--- = Profit maximized at 1 1 MC MR = . Thus, the Best Reaction Function for Firm 1 is 2 400 100 2 500 3 2 * 1 1 3 2 y y y y y y-- = ⇒ =--- Since firms are has identical costs (i.e. they are symmetric), y y y y ′ = = = 3 2 1 . Thus, 3 2 1 100 200 2 2 400 2 400 y y y y y y y y y = = = = ′ ⇒ ′- = ′- = ′- ′- = ′ Correct answer: (b) 2. 200 300 500 300 3 3 2 1 =- = ⇒ = ′ = + + = p y y y y Y Then, for 3 2, , 1 = i , the profit for firm i is 10000 ) 100 ( 100 ) 100 ( 200 =- =- = i i i TC py π Correct answer: (c) 3. This is a case of shared monopoly. Correct answer: (b). 4. Correct answer: (b). 5. (a) A dominant strategy is that strategy which gives the best outcome irrespective of the strategy chosen by the other player(s)....
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This note was uploaded on 06/18/2011 for the course ECON 2X03 taught by Professor Jamesbruce during the Spring '10 term at McMaster University.

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Quiz 5 Solution - Quiz 5 Solution 1. DD : P=500-y: where 3...

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