Topic: (Monopolistic Competition and Oligopoly) Subject: Economics

Instructions: Show complete computations and label all graphs properly/accurately.

(1) In Province A, there are only 2 companies available and that they act as Cournot duopolists. MC1 = MC2 = 10 Market demand Q = 100-0.5p

(a) Compute for the best response functions of each company. (b) Compute for the best output level for each. (c) Suppose the 2 companies decide to collude, what will be the new output level? Show graphically.

(2) There are two firms (A and B) vying to develop the first vaccine to cure Alzheimer.

Assume a fixed MC across the two firms MCA = MCB = 4. Assume further that they both face a market demand of P = 12 - 0.00004Q and Q = QA + QB.

(a) If firm A is able to enter the market first before firm B, what model would you use to depict this scenario? Why?

(b) Assume firm B's reaction function is: QB = 125,000 - 0.5QA. Compute for: (i) Firm A's Revenue or RA (ii) Firm A's Marginal revenue MRA (iii)Output for firm A or QA and output for firm B or QB (iv) Market Q* and P*