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 November 16th, 2014, 07:08 AM #1 Newbie   Joined: Oct 2014 From: Korea Posts: 4 Thanks: 0 Oligopoly problems Please do help me with these. Thanks. Problem 1: Consider an industry with two fi rms. Let q1 be the output of rm 1, q2 for fi rm 2, and Q = q1 + q2. Consumer demand in the industry is PD(Q) = 40 - Q. Each fi rms has a cost function of c(q1) = 3q1 and c(q2) = 5q2, respectively. Assume that firms engage in Stackelberg competition. Firm 1 is the Stackelberg leader, which fi rst sets q1. After seeing fi rm 1's output, fi rm 2 sets q2. (1) Find the equilibrium quantity of each rm, the market price, and the pro fits for both firms. Now, assume that the fi rms compete in a Cournot fashion. (2) Find the output of each firm and the market price at the equilibrium. (3) Do consumers prefer Cournot competition or Stackelber competition? (4) Compare the social welfare of the market outcomes in Cournot and Stackelberg competitions. Problem 2. Consider a market with demand Q = 256/p2 (squared p). To enter the market a fi rm must first pay an entry cost ,k, thereafter it can produce at a constant marginal cost of 2 with no other fixed costs. (1) If a government grants a fi rm an exclusive monopoly in this market, how low must be for the potential monopolistic fi rm to enter the market? (2) If instead there are two identical potential entrants who will engage in Cournot competition after they both enter, how low must k be for both of them to enter the market?

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