Assignment #2
Q1. A firm faces the following demand and total cost functions:
P = 50 0.5Q
TC = 0.25 Q2 + 35Q + 25
Show that the Q, which minimizes Average Cost, also maximizes profits.
Q2. A firm faces the following demand and total cost functions:
Q = 28
Oligopoly 1 Tutorial Solutions
1. In a Bertrand model, what will be the equilibrium price if:
a) Firm 1 has a MC of 10 and firm 2 has a MC of 10.
In a Bertrand duopoly firms will cut their price up to their marginal cost, therefore both firm will charge
$
Monopoly Tutorial Questions
1. Determine the profit maximizing output and price of a monopoly if market demand is given by
P=6000-10Q and total cost is C=500+5Q^2.
TR = P*Q
TR = 6000Q 10Q2
MR = 6000 20Q
MC = 10Q
MR = MC
10Q = 6000 20Q
Q = 200
P = 4000
2.
Pricing Tutorial Solutions
Q1. Assuming you have the highest estimate, how would you avoid the winners curse in a
common-value, first price, sealed-bid auction?
The winners curse occurs when the highest bidderhaving won because of excessive optimism
about
BUS 207 Demand Analysis Tutorial
Elasticity Overview
Point Elasticity measure the elasticity of demand at a particular point on the D curve
Formula
When Ep = 0 we have a perfectly inelastic demand meaning the D curve is vertical and for any %
change in Pr