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Dr. Avanti Mukherjee Fall 2021 SUNY Cortland ECO 301 - Economics of the Firm noitsulie vlogoub ab PROBLEM SET 4 what s isbienoo .S bas
Dr. Avanti Mukherjee Fall 2021 SUNY Cortland ECO 301 - Economics of the Firm noitsulie vlogoub ab PROBLEM SET 4 what s isbienoo .S bas boog Due Friday, Dec 3rd at 1159 pm on BB -ermil owl diw d ssimitgo This last problem set is worth 45 points. Please show all work and full reasoning. sin imA 1. The demand function in a market given by p(X) = 100 - 2X, where X is the industry output. Campbell is a monopolist facing marginal cost c = 4. at tedW .6 a. Calculate the monopoly output that Campbell produces? [3 points] Teriog s) b. What is the monopolist price that Campbell charges? [2 points] c. How much profit will Campbell make? [2 points] .nodonut d. Sketch Campbell's inverse demand curve and marginal cost curve. Compute and sketch marginal revenue on the same set of axes. Make sure to label all intercepts, lines and axes. i. Indicate where the profit-maximizing price and quantity are. ii. Shade/label the areas for total cost, total profit, consumer surplus and deadweight loss and calculate the numerical value of each of these. [8 points] [Tip: Formula for area of a triangle: 1/2 * Base * Height] densup galximixsmDr. Avanti Mukherjee 108 098 SUNY Cortland Fall 2021 ECO 301 - Economics of the Firm 2. Consider a market with demand curve as given in Question i and a duopoly situation with two firms - Ambani (A) and Birla(B) --- that sell a standardized good and optimize their quantities when maximizing profit. Both firms have the same marginal cost and thus cost functions given as: Ambani's cost function, c(xA) = 4XA ; Birla's cost function, c(XB) = 4XB a. What is the industry demand function? How is it distinct from Question 1 [2 points] b. What are the revenue and profit functions of each firm? [2 points] c. Define the best response strategy in this context, and find each firm's best response function. [3 points] d. Find the Nash equilibrium level of output for each firm i.e. each firm's profit maximizing quantity. [3 points]Dr. Avanti Mukherjee Fall 2021 SUNY Cortland ECO 301 - Economics of the Firm e. Use the profit-maximizing outputs to find the market price. [1 points] dogdeont enob andW (s) Wers WIN 79 09gest blo love f. How much profit will each firm make when it maximizes profit? [1 points] g. Graph the residual inverse demand curve for the Ambanis, and the marginal cost curve. Compute and sketch Ambani's marginal revenue on the same set of axes. Make sure to label all intercepts, lines and axes. i. Indicate where the profit-maximizing price and quantity are. ii. Shade/label the areas for total cost and total profit each for Firm A and Firm B, iii. Shade/label the consumer surplus and deadweight loss and calculate the numerical value of each of these. Explain how consumer surplus and deadweight loss have changed from Q1. [8 points]
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