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ajaz_eco_204_2012_2013_chapter_16_Market_Power_PP

Answer from above we have re arrange this

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Unformatted text preview: rms with Market Power in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Question 16.7 The demand for AMD is given by: ( ) ( (a) Transform AMD’s demand into the form ). You will use this model later. Show all calculations. Answer From above we have: ( ) ( ) Re-arrange: ( This is in the desired form ) (b) Transform Intel’s given demand model: into the demand model ( ). You will use this model later. Show all calculations. Answer From above we have: ( ) Re-arrange: This is in the desired form ( ) (c) Use your answers to parts (a) and (b) to derive the following two demand models for AMD and Intel respectively: ● ( )● ( ). You will use these models later. Show all calculations. Answer We had: 13 ECO 204 Chapter 16: Practice Problems & Solutions for Analysis of Firms with Market Power in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. ⏟ ⏟ To derive ( ) substitute Intel’s demand curve into AMD’s demand curve: { } ( To derive ( ) ( ) ( ) ) substitute AMD’s demand curve into Intel’s demand curve: { ( } ) ( ) ( ) 14 ECO 204 Chapter 16: Practice Problems & Solutions for Analysis of Firms with Market Power in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Question 16.8 Use AMD’s demand model from (16.7), part (c) to answer this question. (a) Suppose AMD is a monopolist -- calculate AMD’s profit maximizing output and price. Show all calculations. Answer If AMD is a monopolist then Intel’s output is nil (i.e. ). Use this fact in: Since there is ample capacity and no minimum output constraint, AMD’s problem is: ( ( ) ) { } ( ⏟ ( ⏟ ) ) ( ⏟ ⏟ ) This implies: ( ) (b) What would be the impact on AMD’s monopoly profits due to a hypothetical \$1 increase in its marginal cost (in this question only)? Show all calculations. Answer By the envelope theorem, the impact on op...
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