ps3_a-1

# ps3_a-1 - Industrial Organization PS#3 Suggested Answers(1...

This preview shows pages 1–3. Sign up to view the full content.

Industrial Organization PS #3 Suggested Answers (1) A demand function is given by Q=100-P. Calculate the price elasticity of demand at Q=20 Answer: E=(dQ/dP) * (P/Q) = -(1) * (P/Q) at Q=20 à P=80 Thus E= -(1) * (80/20) = -4 (2) A demand function is given by Q=100-ln(P). Calculate the price elasticity of demand at Q=20 Answer: E=(dQ/dP) * (P/Q) = -(1/P) * (P/Q) at Q=20 à lnP=80 and P=4.38 Thus E= -(1/4.38) * (4.38/20) = -0.05 (3) Assume the market for beer is characterized by the following structure. Firm MC Sales 1 12.5 100 2 12.5 90 3 13 40 4 13 10 5 13 8 6 13 7 7 12.5 5 The marginal cost is assumed to be constant for each firm. A competitive firm would have incurred a MC equal to 12. The market price is equal to \$20. (a) Calculate CR4 and HHI Answer: CR4=0.923, HHI=0.295 (b) Calculate Answer: = 12.625

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
(c) Calculate the Lerner Index for each firm and the weighed Lerner Index Answer: Firm LI 1 0.375 2 0.375 3 0.35 4 0.35 5 0.35 6 0.35 7 0.375 Average weighed Lerner Index= 0.36875 (d) Calculate the welfare loss per sale and the overall welfare loss due to the high degree
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 3

ps3_a-1 - Industrial Organization PS#3 Suggested Answers(1...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online