Eco 322: Competitor and Market Analysis
Lehigh University
Exam #1 Key
Prof. Mary E. Deily
Spring 2009
1a. Economies of scale are reductions in long run average cost that occur as the firms output
level, or scale of operation, increases. Significant scale
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Exam #2 KEY
All questions were of equal weight.
1a. The equilibrium prices are PA = PB = $4; since the shops are identical if there are no travel costs, the
model is
Eco 322: Competitor and Market Analysis
Deily
Lehigh University
Homework #3
Prof. Mary E.
Spring 2009
1a. Version 1: Impeachment is a dominant strategy for both.
Version 2: Impeachment is a dominant strategy for Time, but not Newsweek. Given that
Time cho
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Homework #2
#1. We dont know because we dont know the cost of different pizzas.
#2a. With price discrimination, we need to find a separate price and output for each
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Homework #1
1a. Setting inverse demand function equal to the (inverse) supply function, we obtain the
equilibrium quantity:
Inverse Demand = 1,000 0.025Q = 150 + 0.0
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Homework #4
2c. Using the formulae for n=5 identical Cournot competitors we get:
Q* = (n/n+1)(a-c)/b) = 5/6(400-40)/2) = 150
2d.
and
P* = 400 2(150) = 100.
For n = 2
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Homework #6
1a. Blockaded entry means that the incumbent need take no action to prevent entry; given the
current demand and entrant costs, entry will not be profitab
Eco 322: Competitor and Market Analysis
Deily
Lehigh University
Homework #5
Prof. Mary E.
Spring 2009
7a. Quick Cutss demand = xmN and Le Coupes demand = (1-xm)N, where Quick Cutss xm is the
location of the indifferent consumer. Solve for xm as a function
Eco 322: Competitor and Market Analysis
Deily
Lehigh University
Prof. Mary E.
Spring 2009
Homework #9
6. Advertising that carries information about the price of homogeneous products tends to increase
price competition. One could think of this, in the cont
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Homework #8
1a. The information given provides point estimates for the demand elasticity and the advertising
elasticity. Using the Dorfman-Steiner condition and the
Eco 322: Competitor and Market Analysis
Lehigh University
Prof. Mary E. Deily
Spring 2009
Homework #7
#1. The merger paradox demonstrates that the merger of two firm identical Cournot competitors
will usually not increase the new firms market power enough