Given the Demand function from Part 1: D(p) = 64 2p , The monopolist's cost is...

Given the Demand function from Part 1: D(p) = 64 2p , The monopolist's cost is equal to C(Q) = Q2 + 2Q:

PART II. Now take the same demand function as in Part I but imagine that the market has two firms instead of 1. Also assume that the marginal cost of each firm is equal to 4. Market structure is therefore characterized as a duopoly. Suppose that firms compete by choosing their output levels simultaneously.

(14) (2 points) Write down the profit expressions of Firms 1 and 2.
(15) (4 points) Derive the best-response functions of Firms 1 and 2.
(16) (3 points) Plot the best-response functions of Firms 1 and 2.
(17) (2 points) Find the output choice of each firm. Show it on the graph you drew in (17). For 18-19, first state if the statement is True or False. Then, give a brief explanation.

(18) (3 points) Oligopolies create less deadweight loss than monopolies.
(19) (3 points) Consider a duopoly where firms compete by choosing quantities one after the other. The firm which makes its output choice first, enjoys more profits as it can set a higher price.

Expert Solution

Rahul Sunny answered 8 months ago

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