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##### ECO- Suppose a monopolist faces the following demand curve

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Question;1. (30 points) Suppose a monopolist faces the following demand curve;P = 596 ? 6Q. If the long run marginal cost of production is constant and equal to $20.;a) (5 points) What is the monopolist?s profit maximizing level of output?;b) (5 points) What price will the profit maximizing monopolist charge?;c) (5 points) How much profit will the monopolist make if she maximizes her profit?;d) (5 points) What would be the value of consumer surplus if the market were perfectly competitive?;e) (5 points) What is the value of the deadweight loss when the market is a monopoly?;f) (5 points) What is the value of the Lerner Index for this monopoly?;2. (30 points) Suppose there are two firms in a market who each simultaneously choose a quantity. Firm 1?s quantity is q1, and firm 2?s quantity is q2. Therefore the market quantity is Q = q1 + q2. The market demand curve is given by P = 100 ? 4Q. Also, each firm has constant marginal cost equal to 28. There are no fixed costs.;The marginal revenue of the two firms are given by;? MR1 = 100 ? 8q1 ? 4q2;? MR2 = 100 ? 4q1 ? 8q2.;A) (6 points) How much output will each firm produce in the Cournot equilibrium?;B) (6 points)What will be the market price of the good?;C) (6 points) What is the deadweight loss that results from this duopoly?;D) (6 points) How much profit does each firm make?;E) (6 points) Suppose Firm 2 produced 10 units of output. How much output should Firm 1 produce in order to maximize profit? (Hint: Use Firm 1?s Reaction Function);3. (28 total points) Suppose that two players are playing the following game. Player 1 can choose either Top or Bottom, and Player 2 can choose either Left or Right. The payoffs are given in the following table;Player 2;Player 1;Left;Right;Top;6 5;9 4;Bottom;7 4;5 3;where the number on the left is the payoff to Player A, and the number on the right is the payoff to Player B.;A) (4 points) Does player 1 have a dominant strategy, and if so what is it?;B) (4 points) Does player 2 have a dominant strategy and if so what is it?;C) (2 point each) For each of the following strategy combinations, write TRUE if it is a Nash Equilibrium, and FALSE if it is not;i) Top/Left;ii) Top/Right;iii) Bottom/Left;iv) Bottom Right;D) (4 points) What is Player 1?s maximin strategy?;E) (4 points) What is player 2?s maximin strategy?;F) (4 points) If the game were played with Player 1 moving first and player 2 moving second, using the backward induction method discussed in the class notes, what strategy will each player choose?

Paper#57349 | Written in 18-Jul-2015

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