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problemset11 - Middle East Technical University Department...

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Middle East Technical University Spring 2011 Department of Economics ECON 201 Erol Çakmak TA: Osman Değer PROBLEM SET #11 1. Assuming that the market demand is p(q)=a-bq, find the equilibrium output levels of firms for a. Cournot competition, with two firms. b. Bertrand competition with identical products and two firms. c. Cartel, two firms. d. Stackelberg, with firm 1 as the leader. e. Compare the economic results generated by these models. 2. Draw a graph that shows the effect on the equilibrium quantities if the government subsidizes one firm in a Cournot duopoly with a per unit subsidy. Assume that the best response functions are linear. Explain the new equilibrium quantities. 3. A market consists of one large firm that controls a very large portion of market sales, and many small firms, with each of these small firms selling an insignificantly small portion. The inverse own price demand curve for the market is P(Q)= 595 - Q M .
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