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In: Economics

Suppose there are two departments selling economics degrees in one market competing fol-lowing the rules of...

Suppose there are two departments selling economics degrees in one market competing fol-lowing the rules of the Stackelberg Oligopoly Model—econ and man. econ. Suppose man.econ is the leader and econ is the follower. Suppose market demand for an economics degree is

Q= 7200−2p.

Suppose both departments marginal cost is $3000 per degree

1.1 What is the econ department’s best response function?

1.2 What is the man. econ department’s residual demand curve?

1.3 What is the Nash-Stackelberg equilibrium in this market?

1.4 What is the price at this equilibrium?

1.5 What are profits for the two departments at this equilibrium?

1.6 Graph the marginal cost, demand, residual demand, and marginalrevenue curve for the man. econ department. Show the equi-librium price and quantity for the man. econ department.

2.BertrandNow suppose that instead of competing on quantities, the two departments are competingby setting prices following the Bertrand Oligopoly Model. Marginal cost remains the sameand total market demand for economics degrees is 720.

2.1 What is the Nash-Bertrand equilibrium for this market?Now suppose that the two departments enter the market for online degrees with differentiated products. The marginal cost of each degree drops to $400 for each department. Suppose economics faces a demand function ofqe= 10000−200pe+ 100pme. Suppose man. econ faces ademand function ofqme= 10000−200pme+ 100pe.

2.2 What is the Nash-Bertrand equilibrium now?

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Expert Solution

Rahul Sunny answered 2 years ago
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