Intermediate microeconomics

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Question 3 Consider the market for a virus vaccine with the following inverse demand function: p(y) = 40 23/ where y is total sold quantity of the vaccine on the market and 39(3)) is the price for which it sells for. There are only two firms on this market, ACME and BETA, who both produce this homogenous good. ACME's cost function is CA (37.4) = 4yA and BETA's cost function is CB (ya) = 2313 where 3211 is quantity produced by ACME and 31;; is quantity produced by BETA. The two firms set their production quantities simultaneously without knowing the choice of their opponent, but both firms know the inverse demand function and each other's cost functions. a) Derive both rms' best response functions and draw these in a diagram. (8 points) b) What quantities will each firm produce in the equilibrium? Illustrate these quantities in the diagram from a). What is the total quantity produced and what is the equilibrium price? (7 points) Now assume that ACME sets its quantity before BETA, and that BETA can observe ACME's choice before choosing its own quantity ya. c) What quantities will the rms produce in the new equilibrium? Show your calculations. If you were the social planner and wanted to maximize the amount of vaccine produced, which market structure (compare b) to 0)) would yOu prefer and why? (7 points) (1) Questions 3b) and 3c) represent two different market structures with imperfect competition. What are the models used to analyse them called? Can you think of any other market structures that w0uld increase Output and lower price even more than in 3b) and 3c)? Explain briey. (3 points)