1. (15%) You are manager of College Computers, a manufacture of customized computers that meet thespecifications required by the local university. College computer is not the only firm that buildsthe computer to meet the university's specification. There are many other manufactures. To attachits student clientele, College Computers advertises its service by using "free service after the

sale" policy to differentiate itself from the competitors.

a. Identify the market structure in the above example and explain.

b. Suppose the demand for the computers produced by College Computers is Q =1000 - P. Its weekly cost of producing it is C(Q) = 2000 + Q^2. If other firms in the industry sell PCs at $600, what price and quantity of computers should you choose?

c. Given the answer from part b, what long run adjustment should you anticipate? Explain.

2. (10%) A firm sells its product in a perfectly competitive market where other firm charges a price of $40 per unit. The firm's total costs are C(Q) = 40 + 8Q + 2Q^2.

a. How much should the firm produce in the short run?

b. What price should the firm charge in the short run?

c. What is the firm's short-run profit?

3. (10%) Use the graph to explain how the long run equilibrium is reached in a perfect competitive

market?

4. (20%) Two firms compete in a market to sell a homogenous produce with inverse demand function P = 400 - 2Q. Each firm produces at a constant marginal cost of $50. Use this to compare the outputand profits in settings characterized by Cournot, Stackelberg, Bertrand, and collusive behavior.

5. (10%) Coca-cola and PepsiCo are the leading competitors in the market for cola products. In 1960Coca-Cola introduced Sprite, which today is the worldwide leader in the lemon-lime soft drinkmarket. Prior to 1999, PepsiCo did not have a product that competed directly against Sprite and hadto decide whether to introduce such a soft drink. By not introducing a lemon-lime soft drink,PepsiCo would continue to earn a $200 million profit, and Coca-Cola would continue to earn a $300 million profit. Suppose that by introducing a new lemon-lime soft drink, one of two possible strategies could be pursued: (1)PepsiCo could trigger a price war with Coca-cola and both would earn profits of 100 million, or (2)Coca- Cola could consent, then Coca-cola and PepsiCo would earn $275 million and $227 million respectively. Please use the extensive form represent the situation. Would introducing the new soft drink be the most profitable strategy?

6. (15%) Use the following normal-form game to answer the following question.

		Player 2
Player 1	Strategy	C	D
	A	30,30	70,0
	B	0,70	60,60

a. Identify the one-shot equilibrium

b. Suppose the players know this game will be repeated three times. Can they achieve payoffs thatare better than the one-shot game Nash Equilibrium? Explain.

c. Suppose the game is infinitely repeated and the interest rate is 6%. Can the player achievepayoffs that are better than the one-shot game equilibrium? Explain.

7.(10%) Suppose Ann is working on a project with John. Both must decide whether to put into a decent amount of effort into the project. Since Ann is the leader of the project, her contribution determines whether the project will be successful. If she puts into a decent amount of effort, the project will be finished on time and each will enjoy 3 units of benefit. If she decides not do so, the project will not be finished on time, neither one will get benefit. Suppose a decent amount of effort incurs a cost of 1 unit for each person. Please use the normal form represent the situation and identify the Nash Equilibrium if there is any. Would both be happy about the outcome and why?

8.(10%) Please list all the characteristics of different market structures you have learned and provide an example for each market structure. (Please also explain the profit margin and market power in each market structure.)