# ps7 - ECO 310, Fall 2007 Problem Set 7: Oligopoly Due in...

This preview shows pages 1–2. Sign up to view the full content.

ECO 310, Fall 2007 Problem Set 7: Oligopoly Due in class on December 11 Question 1 Consider a Cournot duopoly with homogeneous products and an industry de- mand function P =( q 1 + q 2 ) - 3 / 2 . Each Frm’s marginal cost is constant and equal to c> 0. (a) ±ind expressions for the Cournot equilibrium price, total quantity, and proFt (as functions of c ). (b) Verify that as c increases, each Frm’s proFt increases. What is the eco- nomic intuition for this? Question 2 There are two goods, whose quantities are denoted by q 1 , q 2 and prices by p 1 , p 2 . The demand functions are q 1 =2 - p 1 + kp 2 ,q 2 =2+ 1 - p 2 . Here k is an algebraic constant (parameter) whose value is somewhere in the range - 1 <k< 1. Each good is produced by one Frm. The marginal cost of production of each good is constant and equal to 1. (a) ±or what range of possible values of k are the two goods substitutes? When are they complements? (b) Obtain expressions for the proFts Π 1 and Π 2 of the two Frms in terms of their prices (and the constant k ).

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/07/2008 for the course ECO 310 taught by Professor Stephene.morris during the Fall '08 term at Princeton.

### Page1 / 2

ps7 - ECO 310, Fall 2007 Problem Set 7: Oligopoly Due in...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online