EC347 – INDUSTRIAL ORGANISATION ASSIGNMENT
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EC347 – INDUSTRIAL ORGANISATION
ASSIGNMENT
Q1.Consider a Cournot duopoly market with demand curve = − , ℎ = 1 + 2 . The firm’s respective marginal costs are 1, 2 . [20 marks]
a) [15 marks] What are the Cournot reaction functions of each firm? What is the Cournot-Nash equilibrium? Illustrate reaction functions and the Cournot-Nash equilibrium in a graph.
b) [5 marks] If firm 2’s marginal cost (2) decreases how does firm 1’s quantity change? Explain why this is the case.
Q2.Suppose consumers, each with unit demand, are uniformly distributed along a 1-mile street. Two price-setting firms 1 and 2 are located at each end of the street: firm 1 at 0 and firm 2 at 1. Consumers face a travel cost of £0.1 per mile. Marginal production cost of firm 1 is £0.5 and that of firm 2 is £1.5. Find out the reaction functions and equilibrium prices. [25 marks]
a) [20 marks] Find out the marginal consumer and reaction functions of the firms. Draw reaction fundtions in a diagram.
b) [5 marks] Determine the equilibrium price, quantity, and profits in each market.
Q3.Consider a firm faces two consumers, consumer 1 and consumer 2, with the following two demand curves: P1 = 150 - 6Q1 and P2 = 302 - 4Q2 . The total cost function is () = 6 . [30 marks]
a) [10 marks] If the firm charg different prices to two consumers, what are the profit- maximising prices the firm should charge? Find the profit-maximising level of outputs and profits in each case.
b) [10 marks] The firm decides to use a two-part tariff strategy to maximise its profit. If the firm use a two-part tariff seperatley for two consumers, what are the price strategy of the firm and profit in each case?
c) [5 marks] The firm decides to use a single two-part tariff that permits both consumers to buy. Find outputs and price under this scenario. What are profits?
a) [5 marks] The firm has an option of eliminating the low-volume consumer from the market. Would it be better for the firm to focus on the high-volume consumer only? Explain. Find the output, price, and profit if the low-volume consumer is eliminated.
Q4. Consider the following game. [25 marks]
|
Firm 2 |
|||
High price |
Middle price |
Low price |
||
Firm 1 |
High price |
40, 40 |
0, 70 |
0, 60 |
Middle price |
70, 0 |
30, 30 |
10, 50 |
|
Low price |
60, 0 |
50, 10 |
20, 20 |
a) [5 marks] This is a one-shot game. Find all the Nash equilibria and explain.
b) [5 marks] Now, this game is repeated for 20 times. What are the sub-game perfect Nash equilibria of this repeated game? Explain your answer.
c) [15 marks] Now, the game is repeated for infinite times. What would be the mechanism to reach any other equilibrium than Q4 b)? Explain in detail.
2022-04-26