1. (15 points) The goods market comprises 2 firms, Firm A and Firm B, with market demand: P = 48 - 0.5Q where Q = qa+ qB. Given their big sizes and acquiring capital through renting, their marginal costs (MC) and average costs are zero. 1.1) (3 points) From above, draw a graph showing the market demand and the demand, marginal revenue (MR) and output (qa) of Firm A in the case that Firm B produces 10. (your points depend on the details). 1.2) (5 points) From above, Firm A has a reaction function to Firm B's output as: qa = 48 0.528 whereas Firm B has a reaction function to Firm A's output as: = 48 0.5qA. Find market output (Q), market price, qa, qB, profits of Firms A and B at the equilibrium points. (Hint: You may only illustrate by graph and table and need not calculating, but calculating add extra points). 1.3) (5 points) If later Firm A acquire more data and become a leader as in the Stackelberg model, calculating for market output (Q), market price, qa, qB, profits of Firms A and B at the equilibrium points by using all above details. 1.4) (2 points) Compare market output (Q), market price, qA, 7B, profits of Firms A and B at the equilibrium points in 1.2) and 1.3). Describe in which case the numbers are bigger (Table and graph summarizing the details add extra points). 1. (15 points) The goods market comprises 2 firms, Firm A and Firm B, with market demand: P = 48 - 0.5Q where Q = qa+ qB. Given their big sizes and acquiring capital through renting, their marginal costs (MC) and average costs are zero. 1.1) (3 points) From above, draw a graph showing the market demand and the demand, marginal revenue (MR) and output (qa) of Firm A in the case that Firm B produces 10. (your points depend on the details). 1.2) (5 points) From above, Firm A has a reaction function to Firm B's output as: qa = 48 0.528 whereas Firm B has a reaction function to Firm A's output as: = 48 0.5qA. Find market output (Q), market price, qa, qB, profits of Firms A and B at the equilibrium points. (Hint: You may only illustrate by graph and table and need not calculating, but calculating add extra points). 1.3) (5 points) If later Firm A acquire more data and become a leader as in the Stackelberg model, calculating for market output (Q), market price, qa, qB, profits of Firms A and B at the equilibrium points by using all above details. 1.4) (2 points) Compare market output (Q), market price, qA, 7B, profits of Firms A and B at the equilibrium points in 1.2) and 1.3). Describe in which case the numbers are bigger (Table and graph summarizing the details add extra points)
