1. Assume that a monopolist has a demand curve given by P = 1500 - 4Q, and TC = 100 + 5Q^2 with, MC = 10Q.
(a) If the firm charges a single price to everyone, how much profit does the firm make?
(b) Use a graph to show whether this market is efficient.
(c) If the firm could instead perfectly price discriminate, how much will the firm produce and what are the firm's profits?
(d) Use a graph to show whether this market is efficient.
2. Assume the market for cars is a duopoly, with a market demand curve given by P = 2500 - 2Q. Assume that the two identical firms can produce cars for a constant marginal cost of 5 with zero fixed costs.
(a) If the firms are Cournot duopolists, how much profit with each firm earn?
(b) If the firms are Bertrand duopolists, what will the market price be and how much profit will each firm earn?
3. Apple and Yahoo are engaged in a battle over search engines. Assume that the search engine market is worth $100 million. If Apple enters, and Yahoo does nothing, then Apple can reasonably expect to take 40% of the market. It costs Apple $20 million to build a new search engine. However, if Apple enters and Yahoo decides to compete with Apple by redesigning its search engine to incorporate some of the features of the Apple search engine, Apple can only take 30% of the market. The redesign will cost Yahoo $20 million.
(a) Set up the game and find the equilibrium assuming that Apple and Yahoo move simultaneously.
(b) Set up the game and find the equilibrium assuming that Apple move first, and Yahoo responds.