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week4_problem - 2(Bertrand game Suppose there are two...

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Econ 101 Microeconomic Theory Professor Jernej Copic Exercise for TA section: week 4 Hyo Sang Kim 1. Suppose monopoly market has a demand function as following. Q = 20 P The monopolistic firm’s cost function is a constant function C = 5 . (a) What price will the profit maximizing firm choose? What market output will this yield? (b) What will be the consumer’s surplus? What will be the monopolistic firm’s surplus? (c) Is this Pareto efficient? If not, how to recover Pareto efficient?
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Unformatted text preview: 2. (Bertrand game) Suppose there are two identical Frms, labeled 1 and 2, producing identical prod-ucts at a constant marginal cost c = 5 . The Frms choose price p 1 and p 2 simultaneously. Because Frms’ products are identical, all sales go to the Frm with the lowest price. Sales are split evenly if p 1 = p 2 . (a) What is the Nash equilibrium in this game? 1...
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