Problem Set 6

# Problem Set 6 - than the oligopoly prices? If so, explain...

This preview shows page 1. Sign up to view the full content.

Econ 100A – Microeconomics Professor Reynolds Department of Economics University of California, Berkeley Problem Set 6 Due 8:10 am April 18 1. Two firms compete for consumers who have the aggregate demand curve x=100-2p. Both firms have constant marginal cost, with MC 1 =1 and the other firm has MC 2 equal to some constant c>1. a. Using Bertrand price competition, illustrate both firms’ best response functions & indicate what the outcome is for each firms’ production & profit. b. Using Cournot quantity competition, illustrate both firms’ best response functions. c. Suppose firm 2 is the “smarter” firm and is able to tell what firm 1’s best response function is. Using Stackleberg competition, what is the highest value of c such that firm two has more profits than firm one? 2. Exercise 26.4 all parts from A; i and p* j ) g. Are there any values of for which the monopolist prices for both goods are smaller
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: than the oligopoly prices? If so, explain how this can be profitable for the monopolist. h. In terms of , what are the socially optimal prices? 3. I am going on vacation in the summer and I would like to hire a student to run my cookie baking business. Profits are based on the student’s effort e and equal to 2e + . The student’s cost of effort is e 2 . If I do not hire the student, the student will work at as dorm clerk, exert zero effort, and make \$3. Help me determine the salary scheme: s=a+b . a. What is the student’s participation constraint? b. What is the incentive constraint? c. What is my optimization problem? d. What will I pay the student & how much effort will be exerted? e. What will be my profits? Do you think I should skip my vacation to stay home & monitor the student? (My vacation would provide me with \$7 net utility.) f. What is the socially efficient level of effort?...
View Full Document

## This note was uploaded on 09/11/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.

Ask a homework question - tutors are online