Econ 5130 Fall 2020. Assignment 3. Name All questions are worth 10 points each 1. The market demand for a product is given by: P = 660 - 2Q The marginal cost of production is constant at MC=15 a) What is the economically emcient price and quantity in this market? b) If the industry is a Cournot duopoly and they are able to collude how much is the welfare loss compared to the efcient outcome in part a? How much prot would the colluding rms make? c) Show that the rms would have an incentive to deviate from the collusive quantities by deriving their reaction functions. What would be the Cournot-Nash equilibrium quantities, price and prots of the two firms? Is this an improvement over part b? d) Suppose that a third firm enters. Calculate the Cournot-Nash equilibrium quantities, price and prots in this three rm oligopoly scenario. Is the outcome better than part c? 2. A monopolist has the following cost and inverse demand functions: C = 2400 + ZDQ + Q2 P = 200 2Q a. Find the profit maximizing price for the monopolist. Determine also output, profits and consumer surplus. b. Determine output, profit and consumer surplus in the case where the monopolist can perfectly price discriminate. c. Compute the DWL from monopoly power in (a) and (b). d. Would it be feasible to regulate this monopoly with the allocatively efficient price cap? 3. How much would the price difference be if two firms with identical total cost functions TC = 45C},- move form Cournot competition to Stackelberg competition facing the market demand (1 = 225 3P . 4. Consider a market where inverse demand is given by P=630 3Q. Marginal costs are symmetric at 90. What would be the difference between and Stackelberg duopoly equilibrium and a three firm CournotNash equilibrium? 5.A monopoly faces two types of customers with the following inverse demand curves: Type A: P = 5 (1/400 Type B: P = 5 Q/BOO