ECON 468: Handout 1 SOLUTION
Problem Set 1 is due Monday, February 1
Please put number of the discussion that you attend on your homework.
The schedule of discussions:
DIS 302 9:55 - 10:45am SS 6314
DIS 303 11:00 - 11:50am Birge 350
DIS 304 12:05 - 12:55p
ECON 468: Industrial Organization Problem Set 1 Due date: February 12th
January 29, 2008
1. The only factory of a small town employs workers for $5 an hour, for forty-hour weeks. The closest urban center is located at 1 hour driving, and the average
ECO 328
Problem Set 1: Review of Competitive Markets
1. Suppose that the total cost of producing pizzas for the typical firm in a local town is
given by: C(q) = 2q + 2q2. Thus, marginal cost is MC = 2 + 4q.
(a)
Show that the competitive supply behavior of
ECON 468: Industrial Organization Solution to Problem Set 1
February 25, 2008
1. The only factory of a small town employs workers for $5 an hour, for forty-hour weeks. The closest urban center is located at 1 hour driving, and the average comparabl
Problem Set 2: Regulated Monopoly
1. Suppose that costs are given by C (y ) = 8 + y, f or y > 0 and C (0) = 0 and
the demand curve is P (y ) = 10 y . Find the following.
(a) the marginal and average cost functions.
(b) the monopoly price, quantity and pro
PROBLEM SET 3
1. The cost of producing y is C (y ) = 5 + 7y . Demand for y is given by
if p > 10
0
10 if 8 < p 10
y (p) =
20 if 0 p 8
(a) What are the monopoly price, quantity, prot and total surplus?
(b) Suppose the monopoly can price discriminate betwee
ECON 468: Handout 10 Solution
Question 1. Advertising
Consider the Grossman and Shapiro (1984) model: there are two firms each located at either
end of a unit line segment with a uniformly distributed population of N potential consumers.
Each consumer wil
ECON 468: Handout 9 Solution
Question 1. Entry
Market demand is given by p = 12 - Q. There are two firms: the incumbent firm, firm 1,
and the entrant firm, firm 2. The incumbent moves first by choosing quantity q1 from the
interval [0, 4]. The entrant obs
ECON 468: Handout 3 SOLUTION
Problem Set 3 is due Monday, February 15
Question 1. Cournot Model
The industry demand is P (y) = 142y. There are two firms with cost functions of C1 (y1 ) = 0
and C2 (y2 ) = y2 respectively.
a) Find Cournot equilibrium quanti
ECON 468: Handout 2 SOLUTION
Problem Set 2 is due Monday, February 8
Please put number of the discussion that you attend on your homework.
Question 1. Simultaneous-Move Games
Consider the following payoff matrix:
G:
W
X
Y
Z
U
3,6
4,10
5,0
0,8
M
2,6
3,3
4,
ECON 468: Handout 5 Solution
Problem Set 5 is due Monday, March 7
Question 1. Indefinitely Repeated Cournot Game
Suppose that two firms compete in quantities (Cournot) in a market in which demand is
described by P = 500 8Q. Each firm incurs no fixed cost
ECON 468: Handout 8 Solution
Question 1. Vertical Mergers
Suppose a dealer has a local monopoly in selling Toyota cars. It pays to Toyota for each
car it sells and charges each customer p. The dealer also incurs an additional labor cost of
3 per each car
Midterm 1 Review Problems
1. Consider an industry in which, for each plant, the cost of producing output y is
1
C(y) = 32 + y 2 if y > 0
2
= 0 if y = 0
The market demand for the product is given by D(P ) = 136 P .
(a) Derive the xed cost, marginal cost, a
ECON 468: Industrial Organization Problem Set 4 Due date: May 8th 2008
May 2, 2008
1. Consider the problem of a cofee-shop who wants to set the price and the optimal size of cup of coffee. The market is composed to two types of consumers i {L, H}
Economics 468- Problem Set 2
Due Monday February 8 at 2:25
1. Nash Equilibrium
Consider a game between two airlines. Players simultaneously choose whether to set a high
price or a low price for the tickets. The payos are given by the following matrix:
L
H
Economics 468- Problem Set 1
Due Monday February 1 at 2:25
1. Competitive Equilibrium
Assume that the manufacturing of cell phones is a perfectly competitive industry. The
market demand curve is given by:
QD =
6000 50P
9
There are fty manufacturers of cel
ECON 468: Handout 7 Solution
Question 1. Horizontal Mergers with Homogeneous Products
The market has linear demand given by p = 20 - Q and three firm with constant marginal
costs that differ across firms. Firms 1 and 2 both have marginal cost equal to 8,
ECON 468: Handout 4 SOLUTION
Question 1. Hotelling Model
In Tuftsville, everyone lives along Main Street which is 10 miles long. There are 1000 people
uniformly spread up and down Main Street, and each day they buy one fruit smoothie from
one of the two s
ECON 468: Industrial Organization Problem Set 4 Due date: May 8th 2008
May 8, 2008
1. Consider the problem of a cofee-shop who wants to set the price and the optimal size of cup of coffee. The market is composed to two types of consumers i {L, H}
ECON 468: Industrial Organization Problem Set 3 Due date: April 22th 2008
April 8, 2008
1. Consider a linear-city market in which 2 firms are located at the opposite end of the line: Figure 1: Linear city with two stores G1 and G2
x
G1 = 0
G2 = 1
ECON 468: Industrial Organization Problem Set 2 Due date: March 13th 2008
March 4, 2008
1. Consider a set of 3 identical firms i = 1, 2, 3 with cost function Ci = 10Qi participating in a market for homogeneous products with demand Q = 100 - P where Q
ECON 468: Industrial Organization Solution to Problem Set 2
March 18, 2008
1. Consider a set of 3 identical firms i = 1, 2, 3 with cost function Ci = 10Qi participating in a market for homogeneous products with demand Q = 100 - P where Q = Q1 + Q2
ECON 468: Industrial Organization Problem Set 3
April 24, 2008
1. Consider linear-city market in which 2 firms are located at the opposite end of the line: Figure 1: Linear city with two stores G1 and G2
x
G1 = 0
G2 = 1
We know that in this marke
Bundling and Tying
In the previous lecture, we examined various strategies that monopolists employ in which
different consumers end up paying different prices for the same commodity. In this
lecture, we study how multi-product monopolists use bundling and
Bundling and Tying
Definitions:
A pure bundling strategy is when the monopolist
offers to sell units of two commodities, 1 and 2, only
as a bundle at a price P12.
A mixed bundling strategy is when the monopolist
offers to sell a unit of product 1 alone at
Monopoly
Definition: A firm is a monopoly if it is the only
supplier of a product in a market.
Why monopoly?
Patents
Natural monopoly
Definition: An industry is a Natural Monopoly
(NM) with respect to quantity Y if the least
expensive way to produce Y i
Lecture on Oligopoly Pricing in Homogenous Good Markets
February 19, 2007
1
Introduction
An industry with a small number of competing rms (greater than 1), where small means
that the decisions of each rm have nonnegligible eect on the others so that rms c
Oligopoly Pricing in Homogenous Good
Markets
Basic Question:
How are prices and quantities determined when a
small number of firms produce a homogenous (i.e.,
identical) product?
Examples: crude oil, grain, vegetables, lumber.
Key Issue:
Monopoly and comp
Price Discrimination
Single-price monopolist leaves some gains from
trade on the table. Objectives of this lecture are
Discuss more sophisticated pricing schemes
that firms use to obtain these gains.
Discuss the welfare implications of these
schemes.
De
PROBLEM SET 4
1. Problem 1 on page 191 of Pepall, Richards, and Norman, 3rd edition, page
189 of 4th edition.
2. Problem 2 on page 191 of Pepall, Richards, and Norman, 3rd edition, page
189 of 4th edition.
3. Boeing and Airbus are the two major producers