1. Suppose all firms in a perfectly competitive and zero-fixed-cost industry previously in its
long-run equilibrium are now receiving an upfront subsidy from the US government.
Please use a graphic tool to answer the following questions:
(a) The new introductory demand will be
p = (100 Q)(1 ) = (100 Q)(1 0.75) = 25 1 / 4Q
(b) It is the thick solid line in the graph below.
(c) It is the thick dashed line below. The highest price AT&T can charge is $12.5.
(d) Higher ri
a) ( p LR , q LR ) in the graph above shows the LREQ individual price and quantity.
b) Higher demand will shift both demand curve and MR up, as illustrated in the
c) With both Demand a
1. The membership fee should be set at the maximum consumer surplus of type-2
members, i.e.1/2*(50-p)*(50-p). Therefore,
2 * 1 / 2 * (50 p ) * (50 p ) p * (100 p ) p * (50 p ) 10 * (100 p ) 10 * (50 p )
1000 70 p p 2
Setting / p 0 p 35
Using the Cournot/Stackelberg/Bertrand Models in International Trade
(a) Same as our discussion in class, q A = qB = 30 , p = 40 .
Note that fixed cost does not matter for the determination of quantity.
A = B = (40 10) * 30 500 = 400 , = A +
HW2: Due 10/10/12
Qm = 3
Qc = 6
a) See the graph above;
b) Set MR =MC, we will have
10 2Q = 4 Q m = 3
Therefore p m = 10 3 = 7 , and m = 7 * 3 4 * 3 = 9
p MC 7 4
c) L =
= 3 / 7 = 1 / = 7 / 3 = 2.33
1) a. Tom and Jerry do not have dominant strategies in this game because if Jerry plays left,
Tom should play left. If Jerry plays right, Tom should play right because it gives him 100
instead of 0. Toms best strategy depends on Jerrys first
Lecture 15: Oligopoly Models with Product Differentiation
Our discussion on monopolistic competition introduces product differentiation into perfect
competition, so that a large number of small firms are able to acquire market power ov
HW5: Due 11/21/12
1. Suppose the breakfast cereal market, which is typically considered as
monopolistically competitive, is now in its long run equilibrium. Recent research
found evidence for the benefit of cereal on the heart healthiness of human beings,
1. Suppose all firms in a perfectly competitive and zero-fixed-cost industry previously
in its long-run equilibrium are now receiving an upfront subsidy from the US
government. Please use a graphic tool to answer the following questions:
a) How do th