14. Let 7; (x;, x-i) denote the twice differentiable profit function for firm i as a function of the amountof a firm controls x; (price or quantity) and the amount of what the other firm controls x-i. Strategiccomplementarity:a. Means that> 0 for all i.b. Implies that the best-response functions in the space (;, x-i) are downward-sloping.c. Means that< 0 for all i..d. None of the above are correct answers.15. Which of the following statements is true?a. In the linear Cournot model with homogenous products the average Lerner index (weighted by marketshares) is proportional to the Herfindahl index.b. In the linear Bertrand model the Lerner index is proportional to the Herfindahl index.c. In the linear Cournot model with differentiated products, the Herfindahl index is an appropriate measureof market power since it captures the average markup in equilibrium.d. All of the above are correct answers.

Strategic complement is the concept in the game theory where 2 players mutually support each other.…

14. Let 7; (xi,x-i) denote the twice differentiable profit function for firm i as a function of the amount of a firm controls x; (price or quantity) and the amount of what the other firm controls x-i. Strategic complementarity: a. Means that 2 0 for all i. dx¿ðx-i b. Implies that the best-response functions in the space (xi, x-i) are downward-sloping. c. Means that Tii,P-i)< 0 for all ¿.. d. None of the above are correct answers.

14. Let 7; (xi,x-i) denote the twice differentiable profit function for firm i as a function of the amount of a firm controls x; (price or quantity) and the amount of what the other firm controls x-i. Strategic complementarity: a. Means that 2 0 for all i. dx¿ðx-i b. Implies that the best-response functions in the space (xi, x-i) are downward-sloping. c. Means that Tii,P-i)< 0 for all ¿.. d. None of the above are correct answers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 3 The inverse market demand for fax paper is given by P=100-Q. There are two firms who produce fax paper. Firm 1 has al cost of production of C₁= 15*Q₁ and firm 2 has a cost of production of C₂=20*Q₂. 1) Suppose firm 1 and firm 2 compute simultaneously in quantities. What are the Cournot quantities and prices? What are the profits of firm 1 and 2? 2) Suppose firm 1 and firm 2 compete simultaneously in prices. What are the Bertrand quantities and prices? What are the profits of firm 1 and 2? 3) Suppose that firm play a Stackelberg game. First firm 1 sets the quantity in t=1, then, knowing which quantity firm 1 has set, firm 2 chooses the quantity in t=2. What are the Stackelberg quantities and prices? What are the profits od firm 1 and 2? Compared to part a) which firm benefits and which firm loses?
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6. Consider a duopoly in which inverse demand is given by P= 100-Q, where Pis the price and Q is aggregate output. The marginal cost of each firm is initially equal to 55 and there are no fixed costs. The firms compete by simultaneously setting quantities. (a) What is the equilibrium quantity of each firm, the equilibrium price and the profit of each firm? Now assume that one of the firms, firm 1, develops a new technology that reduces its own marginal cost to 25. (b) If firm 1 keeps this innovation for itself (so that the marginal cost of firm 2 is still 55), what will be the new equilibrium levels of output, price and profits of the two firms? What is the consumer surplus in the market? Do consumers benefit from the innovation?