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Midterm 1 - Econ 445 Fall 2010 Instructor Sandra...

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Unformatted text preview: Econ 445 Fall 2010 Instructor: Sandra CAMPO—MANTON Midterm I: Sept 30th Important: Be clear and concise. Ten points will be reserved for clarity. If running out of time7 write the logic without the math. Good luck. Problem 1: (20 points) Define and /or explain the following: — How can the prisoner’s dilemma be applied to an economic problem. — The Ray Average cost. Problem 2: (20 points) In 1990, Eli Lilly & Co. and GlaxoSmithKline decide to launch ELLIO drug, a drug for diabetes patients. Eli Lilly & Co. launches the product 6 months in advance (in February 1990) with a production cost of CE(qE) = 42g + 50, while GlaxoSmithKline’s production cost for the same product is CG(qG) = 36g + 20. The product demand is p = 142 — 1.5q. (a) What is the model that best explains the competition here? Explain. (b) Find the optimal price and profits at the equilibrium. Problem 3: (20 points) In 1995, Eli Lilly & Co. (Elli) and GlaxoSmithKline (GSK) gather their R&D and start to produce together an improved drug named APPIC7 with a production cost C(q) = 60q + 140. APPIC is released in 1991. The demand for the new drug is p = 142 — 1.5q. They also (simultaneously) pull ELLIO off the market. (a) What is the model that best explains the competition here? Explain. (b) Find the optimal price and profits at the equilibrium. Problem 4 (30 points) In 2000, Eli and GSK decide to re—optimize their profits. They have the option to both reintroduce ELLIO and pull out APPIC (Plan A), or sticking to the new product (Plan B). In plan B, the cost and demand functions remain the same than in problem 3. In Plan A, the demand stays the same than in problem 2 but the cost function becomes C(q) = 36q + 20 for both firms. (a) Which model(s) best applies here? Explain. (b) Find the optimal profits at the equilibrium. Advice: If you run out of time, please describe the logic and your hints (if any) on the final results. If your reasoning is clear and based on your lecture notes, you may get some credit. fir) G)flc 'pr:‘Soner3‘62f‘/é'mma 5'5"“ 65 1°77K"& 7L0“- €CDHWt§Dbel€m r‘xm 9.3%ch %¢/£ M Zor more firms amp/é Mg:/;Ze 9M: Ne. #671638 a// floss/He ao-Fcomes 3M“ ”(Sf/“(86¢ .1902:be M9 ’— :d2r~— Q) I,“ '1 +' fl) 2‘ a: I . (4))?“ AGSC 325 flim,.-r-*"’L' “a” a ‘9 72‘0" 1 650:4" 004Com9 _ ‘ / for ”at 5:934:53; mix-ewe. Q Q Aumae (0.3+ MM; we.” MOM—ww 74m +p a; Al'flfl‘z‘“ V1! 56v“! (03+ jflunfifudr‘) 31L. (9’: “242%. mi? (051% ’9 MW"AO) ?— EEJ\_(\LGL mu: - . I b C(xa A Q )\Q .\ Q} fie Mmafl 0,0 P‘LJS (05* FOM'IIfiI-u 4/ (Du-55 \M ) ’- ) S 'n . . e :‘vs op 5“"! Q‘FE “Ur-Qt’c mam-'p/Jud‘ pint-x *9 “Ft/:5 7'1““ W/W’ww ,r‘ " W3) C(q>:60q+/‘/0 3, MC: ('90 EMH~ 9311977: M’Z “LS"? A) fl: economic ”1505/ 4%.! «6:94 (2%; 7/11.}; (Ompgyt.¥r|0f‘ :“3' 1%,ng affix {Md 5,216: $44.13 W sch-Silt ?fibboc‘lucq {’r 0”“) L‘H-K- fl— (mug) (c354 'ponc“':an7 ‘p’lm's met-m; 039 (um :90: 51‘ -'*~ a [email protected] MDAOFQL'dHc I‘dsé’bh / 2‘0va _; Pia M g : M’C :MZ‘ "“130 HZ as: :1 Go 5 :’%Q~I.SG‘ 32:36,; TL ' . _ “55‘: :4; use; : MTL . m Mum 5mg ( W92 a! * (3.67 775.0“ 69?? 77: Wz , /. 31%) J a 77 :: “43- 4/ Tar-‘Wig-w (aw 3Z3: —- $40 #40 ____....-——- {7?} = Mani (WM mm “(TI/(:1)? 7 490' 33 7:04“ pan/i}? A)fl¢ Wage/5 #1141! I”); A“? Me #1 5035;va ée/o-Ddtn a. Q) (Wk/ W9 A (00(Md. mpg“) 9‘"! (95 57912555 #2: 6,143 (am I‘m:’... ,2“ (”M w b (Loo-e5- A :06 .g 9M3.» mL 4 A ’ a ‘ 5 1 (Lalo 45 MP ex ”A! SJchPac Wmfia .s QC,- “\- Wé: [Hz - Ly/qgfifl 3E— (urns : #24, 4.5;} , 253,92 - 36.3, - 2c: 7106,,n5g-‘5'7m ~25; ~/ ’75:?”T +7‘fr: .3. ,5; 795-” s 9‘,£fi§_ fl _, ‘3 ”ZSrS'C .[?G=Z.gls'c. .' ._.-- P: /‘/Z- ASI(%§/'LFA$WW , _N3.:. 6,6: (“'67‘0‘5-5Q—r 36.05.5040 WW 7 73%:an if 55% (so/foe») ? (0000+ ...
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