Economics 431 Fall nd midterm Answer Key

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Economics 431 Fall 2003 2nd midterm Answer Key"

Transcription

1 Economics 431 Fall nd midterm Answer Key 1) (20 oints) Big C cable comany has a local monooly in cable TV (good 1) and fast Internet (good 2). Assume that the marginal cost of roducing either good is zero. There are three customers, A, B and C with different reservation rices for the two goods. Consumer utility from a roduct equals their reservation rice minus the rice of the roduct. Consumers do not buy unless they get ositive utility. The reservation rices are as follows Customer Reservation rice for good 1 Reservation rice for good 2 A 2 5 B 4 4 C 6 2 a) (7 oints) Suose the goods are offered searately. Comute the monooly rices for good 1 and good 2. Good 1: Price Quantity Profit , Good 2: Price Quantity Profit Monooly rices (4, 4). b) (5 oints) Now assume that both goods are offered only as a bundle, but not searately. Comute the rofit-maximizing bundle rice. Good 1: Price Quantity Profit The bundle is offered for rice 7 c) (8 oints) Let the two goods be offered searately at rices you have found in a), andalso as a bundle at rice you have found in b). Determine which customers buys only individual goods or both as a bundle. Determine the monoolist s rofit. What is the most rofitable way to bundle the goods? Customer Utility from bundle Utility from good 1 Utility from good 2 Decision A buy good 2 B buy bundle C buy good 1 1

2 Profit: 4+4+7=15 Pure bundling is the most rofitable. 2) (15 oints) A local market for milk is served by several farms. Assume that you can use Cournot model with linear demand and constant marginal costs that may differ across farms to describe how this market oerates. The rice of milk is $2.50 agallon. FarmA has marginal cost of $1.50 er gallon, has a 25% marketshareandmakesarofit of$1000 er day. a) (8 oints) Farm B has a 20% share of this market. Calculate its marginal cost c i = s i η c B = s B c A s A 2.50 c = c =0.8, c =1.70 b) (7 oints) Calculate the rofitoffarmb (Hint: can the ratio of rofits be exressed through market shares?) c i = Bq i π i =( c i ) q i = Bq 2 i π B π A = Bq2 B Bq 2 A = s2 B s 2 A π B =$640er day. 3) (15 oints) Assume that consumer tastes for soft drinks can be described by a location model of roduct differentiation. Let manufacturers have identical marginal costs and set drink rices strategically to maximize rofits. a) (10 oints) Consider three drinks: Coke, Srite (both made by Coca Cola Comany) and Uncle Al s Lemon Mixer. Suose that consumers erceive Coke and Srite as different roducts, but cannot tell the difference between Srite and Uncle Al s Lemon Mixer. Restaurant A serves only Coke and Srite. Restaurant B serves only Coke and Uncle Al s Lemon Mixer. Restaurant C serves only Srite and Uncle Al s Lemon Mixer. All three restaurants have consumers with identical distribution of tastes and willingness to ay. Which drinks at which restaurants will be riced above their marginal cost? Which restaurant will have a higher rice for Coke and why? Drinks at A and B will be riced above marginal cost, drinks at C will be riced at marginal cost. Satial Bertrand vs. Bertrand. Restaurant A will have a higher rice for Coke, because Coca Cola is a monoolist in restaurant A. 2

3 b) (5 oints) Using your results in art a), exlain why we observe that restaurants serving Coke do not serve Pesi, and vice versa. If consumers make little difference between Coke and Pesi, and they are both offered at the same restaurant, they will have to be riced close to marginal cost, and rofit islow. Beinga monoolist in some locations is more rofitable than being a Bertrand duoolist in all locations. 3

4 4) (35 oints) Consider a game between two airlines. Players simultaneously choose whether to set a high rice or a low rice for the tickets. The ayoffs are given by the following matrix L H L 1, 1 6, 0 H 0, 6 5, 5 a) (10 oints) Find all the Nash equilibria of this game. Are equilibrium ayoff allocations Pareto otimal? Suose the game above is reeated a finite number of times. Is there a subgameerfect equilibrium strategy that can lead to Pareto otimal ayoffs at least in some rounds of the game? Exlain. The unique Nash equilibrium is (L, L). It is not Pareto otimal: the allocation that Pareto dominates (1, 1) is (5, 5). By Selten s theorem, all subgame erfect equilibria of the reeated game have layers choose (L, L) action rofile in every round. Therefore, none of the Pareto otimal ayoff allocations (0, 6), (6, 0) or (5, 5) can be realized in any of the rounds. b) (10 oints) Suose instead that both airlines can choose among three rices {L, M, H}. The ayoff matrix for the new game is L M H L 1, 1 2, 0 6, 0 M 0, 2 3, 3 2, 0 H 0, 6 0, 2 5, 5 Find all the Nash equilibria of this stage game. Suose that the stage game is reeated twice, and the ayoff in the second eriod is discounted by δ<1. Find the range of δ for which the following strategy rofile is a subgame erfect equilibrium. Player 1 lays H in the first eriod. If the outcome of the first eriod is (H, H), thenhelaysm in the second eriod, otherwise he lays L in the second eriod. Player 2 has the same strategy. The stage game has two Nash equilibria (M,M) and (L, L). In the second eriod, the strategy tells the layers to choose a Nash equilibrium action after every history, therefore, both layers lay their best resonse in any subgame that leads to the second eriod. In the first eriod, a layer can have a otential deviation to L instead of H. For this deviation to be unrofitable, we must have 5+3 δ>6+1 δ δ> 1 2 c) (15 oints) Now suose that the game in art b) is reeated three times. Write down the comlete descrition of the strategies (that tell what action to take initially and after every ossible history) that can sustain the outcome (H, H) in the firsttwoeriodsasasubgameerfect equilibrium. Find the range of δ for which the strategy rofile you described is a subgame erfect equilibrium. 4

5 Player 1. Play H in the first eriod. In subsequent eriods, lay M if the history has only (H, H) in the ast. For all other histories, lay L in the current eriod. If the history in the first eriod is (H, H), fromthenonthegameisidenticaltothatofartb). The strategy rofile is an equilibrium in this subgame for δ> 1. For any other history after the 2 first eriod, the strategy rescribes to lay a Nash equilibrium of the stage game, therefore, both layers lay their best resonse in any subsequent subgame. In the first eriod, a layer can also have a otential deviation to L instead of H. However,ifit is unrofitable to deviate in the second eriod, it must also be unrofitable to deviate in the first eriod, because the unishment for the same deviation is then two eriods long. 5) (20 oints) Consider the following sequential game of entry deterrence on a market with linear demand given by =9 Q The incumbent (firm 1) first chooses whether or not to invest in new technology. The investment costs K. If the incumbent invests, his marginal cost is c L =1, and if he does not invest, it is c H =6. Then the incumbent and the entrant (firm 2), whose marginal cost is c H =6lay a Cournot quantity game. The rofit functions are ½ (A cl B (q π 1 = 1 + q 2 )) q 1 K if invests (A c H B (q 1 + q 2 )) q 1 if does not invest π 2 =(A c B (q 1 + q 2 )) q 2 a) (10 oints) Show that if the incumbent invests, the Nash equilibrium of the subsequent Cournot game has the entrant roduce zero. How much does the incumbent roduce if the entrant roduces zero? (Hint: will the entrant be better off roducing zero if making q 2 > 0 dros the rice below his marginal cost?) If the entrant roduces zero, the incumbent s best resonse is to roduce monooly outut that corresonds to his marginal cost c L q M = A c L 2B =4 If at this outut level the market rice is below c H, = A + c L =5< 6=c H, 2 then the entrant will have a negative rofit fromanyq 2 > 0. Therefore, entrant chooses to roduce zero as a best resonse. The strategies that are best resonses to each other constitute a Nash equilibrium. b) (10 oints) What are the equilibrium rofits of the two firms if the incumbent does not invest? Find all values of K for which the incumbent will choose to invest in new technology. If the incumbent does not invest, both firmshaveequalmarginalcostsc H,andtheyeachget π 1 = π 2 = 1 (A c H ) 2 =1 9 B 5

6 If the incumbent invests, he gets 1 (A c L ) 2 K =16 K 4 B The incumbent invests if 16 K>1, i.e. K<15. 6

7 Reference Guide Cournot Oligooly with linear demand Elasticity = A BQ η = dq d Q = 1 B Q. Firm i chooses q i to maximize its rofit given the oututs of all other firms: max (A c i BQ i Bq i ) q i q i In equilibrium, each firm s outut must satisfy the condition for rofit maximization: A c i BQ i 2Bq i =0 or or where s i is market share of firm i. c i = Bq i c i = s i η, 7

A Simple Model of Pricing, Markups and Market. Power Under Demand Fluctuations

A Simple Model of Pricing, Markups and Market. Power Under Demand Fluctuations A Simle Model of Pricing, Markus and Market Power Under Demand Fluctuations Stanley S. Reynolds Deartment of Economics; University of Arizona; Tucson, AZ 85721 Bart J. Wilson Economic Science Laboratory;

More information

c 2009 Je rey A. Miron 3. Examples: Linear Demand Curves and Monopoly

c 2009 Je rey A. Miron 3. Examples: Linear Demand Curves and Monopoly Lecture 0: Monooly. c 009 Je rey A. Miron Outline. Introduction. Maximizing Pro ts. Examles: Linear Demand Curves and Monooly. The Ine ciency of Monooly. The Deadweight Loss of Monooly. Price Discrimination.

More information

Chapter 9 Profit Maximization

Chapter 9 Profit Maximization Chater 9 Profit Maximization Economic theory normally uses the rofit maximization assumtion in studying the firm just as it uses the utility maximization assumtion for the individual consumer. This aroach

More information

Monopoly. Monopoly. Causes of Monopolies. Profit Maximization. ECON 370: Microeconomic Theory. Summer 2004 Rice University Stanley Gilbert

Monopoly. Monopoly. Causes of Monopolies. Profit Maximization. ECON 370: Microeconomic Theory. Summer 2004 Rice University Stanley Gilbert Monool market with a single seller Monool ECON 370: Microeconomic Theor Firm demand = market demand Firm demand is downward sloing Monoolist can alter market rice b adjusting its own outut level Summer

More information

Price Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W

Price Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W Price Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W The rice elasticity of demand (which is often shortened to demand elasticity) is defined to be the

More information

2. Suppose two Cournot duopolist rms operate at zero marginal cost. The market demand is p = a bq. Firm 1 s best-response function is

2. Suppose two Cournot duopolist rms operate at zero marginal cost. The market demand is p = a bq. Firm 1 s best-response function is Econ301 (summer 2007) Quiz 1 Date: Jul 5 07 Instructor: Helen Yang PART I: Multiple Choice (5 points each, 75 points in total) 1. In the long run, a monopolistically competitive rm (a) operates at full

More information

On Software Piracy when Piracy is Costly

On Software Piracy when Piracy is Costly Deartment of Economics Working aer No. 0309 htt://nt.fas.nus.edu.sg/ecs/ub/w/w0309.df n Software iracy when iracy is Costly Sougata oddar August 003 Abstract: The ervasiveness of the illegal coying of

More information

Game Theory: Supermodular Games 1

Game Theory: Supermodular Games 1 Game Theory: Supermodular Games 1 Christoph Schottmüller 1 License: CC Attribution ShareAlike 4.0 1 / 22 Outline 1 Introduction 2 Model 3 Revision questions and exercises 2 / 22 Motivation I several solution

More information

Monopoly vs. Compe22on. Theory of the Firm. Causes of Monopoly. Monopoly vs. Compe22on. Monopolis2c Markets P. Natural. Legal.

Monopoly vs. Compe22on. Theory of the Firm. Causes of Monopoly. Monopoly vs. Compe22on. Monopolis2c Markets P. Natural. Legal. Monooly vs. Comeon Monooly Perfect Come,,on Theory of the Firm P Monooly s demand = Market demand (ΔQ P) P Firm s demand = Horizontal line ( Δ P does not change) Monoolisc Markets P d Q Monooly vs. Comeon

More information

Oligopoly: Cournot/Bertrand/Stackelberg

Oligopoly: Cournot/Bertrand/Stackelberg Outline Alternative Market Models Wirtschaftswissenschaften Humboldt Universität zu Berlin March 5, 2006 Outline 1 Introduction Introduction Alternative Market Models 2 Game, Reaction Functions, Solution

More information

Lecture 4: Nash equilibrium in economics: monopolies and duopolies

Lecture 4: Nash equilibrium in economics: monopolies and duopolies Lecture : Nash equilibrium in economics: monopolies and duopolies We discuss here an application of Nash equilibrium in economics, the Cournot s duopoly model. This is a very classical problem which in

More information

Fin 3710 Investment Analysis Professor Rui Yao CHAPTER 6: EFFICIENT DIVERSIFICATION

Fin 3710 Investment Analysis Professor Rui Yao CHAPTER 6: EFFICIENT DIVERSIFICATION HW 4 Fin 3710 Investment Analysis Professor Rui Yao CHAPTER 6: EFFICIENT DIVERIFICATION 1. E(r P ) = (0.5 15) + (0.4 10) + (0.10 6) = 1.1% 3. a. The mean return should be equal to the value comuted in

More information

A COMPARISON OF PERFECT COMPETITION, MONOPOLISTIC COMPETITION, MONOPOLY, & OLIGOPOLY

A COMPARISON OF PERFECT COMPETITION, MONOPOLISTIC COMPETITION, MONOPOLY, & OLIGOPOLY A COMARISON OF ERFECT COMETITION, MONOOLISTIC COMETITION, MONOOLY, & OLIGOOLY Type of Number of Type of Market Sellers roduct rice SR profit LR rofit ------- ---------- ------- ----- --------- ---------

More information

Price Discrimination in the Digital Economy*

Price Discrimination in the Digital Economy* Price Discrimination in the Digital Economy Drew Fudenberg (Harvard University) J. Miguel Villas-Boas (University of California, Berkeley) May 2012 ABSTRACT With the develoments in information technology

More information

What is Adverse Selection. Economics of Information and Contracts Adverse Selection. Lemons Problem. Lemons Problem

What is Adverse Selection. Economics of Information and Contracts Adverse Selection. Lemons Problem. Lemons Problem What is Adverse Selection Economics of Information and Contracts Adverse Selection Levent Koçkesen Koç University In markets with erfect information all rofitable trades (those in which the value to the

More information

Week 7 - Game Theory and Industrial Organisation

Week 7 - Game Theory and Industrial Organisation Week 7 - Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number

More information

Pricing the Internet. Outline. The Size of the Internet (Cont.) The Size of the Internet

Pricing the Internet. Outline. The Size of the Internet (Cont.) The Size of the Internet Pricing the Internet Costas Courcoubetis thens University of Economics and Business and ICS-FORTH Outline The growth of the internet The role of ricing Some ricing roosals Pricing in a cometitive framework

More information

Large firms and heterogeneity: the structure of trade and industry under oligopoly

Large firms and heterogeneity: the structure of trade and industry under oligopoly Large firms and heterogeneity: the structure of trade and industry under oligooly Eddy Bekkers University of Linz Joseh Francois University of Linz & CEPR (London) ABSTRACT: We develo a model of trade

More information

Joint Production and Financing Decisions: Modeling and Analysis

Joint Production and Financing Decisions: Modeling and Analysis Joint Production and Financing Decisions: Modeling and Analysis Xiaodong Xu John R. Birge Deartment of Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208,

More information

12 Monopolistic Competition and Oligopoly

12 Monopolistic Competition and Oligopoly 12 Monopolistic Competition and Oligopoly Read Pindyck and Rubinfeld (2012), Chapter 12 09/04/2015 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition

More information

Re-Dispatch Approach for Congestion Relief in Deregulated Power Systems

Re-Dispatch Approach for Congestion Relief in Deregulated Power Systems Re-Disatch Aroach for Congestion Relief in Deregulated ower Systems Ch. Naga Raja Kumari #1, M. Anitha 2 #1, 2 Assistant rofessor, Det. of Electrical Engineering RVR & JC College of Engineering, Guntur-522019,

More information

Oligopoly and Strategic Pricing

Oligopoly and Strategic Pricing R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small

More information

COMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY

COMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY COMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY WR1 Sam-I-Am is a local restaurant chain located in Vancouver. It is considering different pricing strategies for

More information

Economics 431 Fall 2003 1st midterm Answer Key

Economics 431 Fall 2003 1st midterm Answer Key Economics 431 Fall 003 1st midterm Answer Key 1) (7 points) Consider an industry that consists of a large number of identical firms. In the long run competitive equilibrium, a firm s marginal cost must

More information

Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400

Economics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400 Page 1 March 19, 2012 Section 1: Test Your Understanding Economics 203: Intermediate Microeconomics I Lab Exercise #11 The following payoff matrix represents the long-run payoffs for two duopolists faced

More information

Piracy and Network Externality An Analysis for the Monopolized Software Industry

Piracy and Network Externality An Analysis for the Monopolized Software Industry Piracy and Network Externality An Analysis for the Monoolized Software Industry Ming Chung Chang Deartment of Economics and Graduate Institute of Industrial Economics mcchang@mgt.ncu.edu.tw Chiu Fen Lin

More information

Exercises for Industrial Organization Master de Economía Industrial 2012-2013. Matilde Pinto Machado

Exercises for Industrial Organization Master de Economía Industrial 2012-2013. Matilde Pinto Machado Exercises for Industrial Organization Master de Economía Industrial 2012-2013 Matilde Pinto Machado September 11, 2012 1 Concentration Measures 1. Imagine two industries A and B with concentration curves

More information

Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly] ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]

More information

Do not open this exam until told to do so.

Do not open this exam until told to do so. Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Winter 004 Final (Version ): Intermediate Microeconomics (ECON30) Solutions Final

More information

where a, b, c, and d are constants with a 0, and x is measured in radians. (π radians =

where a, b, c, and d are constants with a 0, and x is measured in radians. (π radians = Introduction to Modeling 3.6-1 3.6 Sine and Cosine Functions The general form of a sine or cosine function is given by: f (x) = asin (bx + c) + d and f(x) = acos(bx + c) + d where a, b, c, and d are constants

More information

Homework 3, Solutions Managerial Economics: Eco 685

Homework 3, Solutions Managerial Economics: Eco 685 Homework 3, Solutions Managerial Economics: Eco 685 Question 1 a. Second degree since we have a quantity discount. For 2 GB the cost is $15 per GB, for 5 GB the cost is $10 per GB, and for 10 GB the cost

More information

I will make some additional remarks to my lecture on Monday. I think the main

I will make some additional remarks to my lecture on Monday. I think the main Jon Vislie; august 04 Hand out EON 4335 Economics of Banking Sulement to the the lecture on the Diamond Dybvig model I will make some additional remarks to my lecture on onday. I think the main results

More information

EECS 122: Introduction to Communication Networks Homework 3 Solutions

EECS 122: Introduction to Communication Networks Homework 3 Solutions EECS 22: Introduction to Communication Networks Homework 3 Solutions Solution. a) We find out that one-layer subnetting does not work: indeed, 3 deartments need 5000 host addresses, so we need 3 bits (2

More information

New Technology and Profits

New Technology and Profits Another useful comparative statics exercise is to determine how much a firm would pay to reduce its marginal costs to that of its competitor. This will simply be the difference between its profits with

More information

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output. Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

More information

Working paper No: 23/2011 May 2011 LSE Health. Sotiris Vandoros, Katherine Grace Carman. Demand and Pricing of Preventative Health Care

Working paper No: 23/2011 May 2011 LSE Health. Sotiris Vandoros, Katherine Grace Carman. Demand and Pricing of Preventative Health Care Working aer o: 3/0 May 0 LSE Health Sotiris Vandoros, Katherine Grace Carman Demand and Pricing of Preventative Health Care Demand and Pricing of Preventative Healthcare Sotiris Vandoros, Katherine Grace

More information

Comparisons of Industry Market Structures. Imperfect Competition Market Structure Models (11/10/09)

Comparisons of Industry Market Structures. Imperfect Competition Market Structure Models (11/10/09) Imperfect Market Structure Models (11/10/09) Today: and Monopsony/Oligopsony Thursday: Market Structure, Conduct and erformance Model Exam III 24 th Characteristics Comparisons of Industry Market Structures

More information

Risk and Return. Sample chapter. e r t u i o p a s d f CHAPTER CONTENTS LEARNING OBJECTIVES. Chapter 7

Risk and Return. Sample chapter. e r t u i o p a s d f CHAPTER CONTENTS LEARNING OBJECTIVES. Chapter 7 Chater 7 Risk and Return LEARNING OBJECTIVES After studying this chater you should be able to: e r t u i o a s d f understand how return and risk are defined and measured understand the concet of risk

More information

THE WELFARE IMPLICATIONS OF COSTLY MONITORING IN THE CREDIT MARKET: A NOTE

THE WELFARE IMPLICATIONS OF COSTLY MONITORING IN THE CREDIT MARKET: A NOTE The Economic Journal, 110 (Aril ), 576±580.. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 50 Main Street, Malden, MA 02148, USA. THE WELFARE IMPLICATIONS OF COSTLY MONITORING

More information

An important observation in supply chain management, known as the bullwhip effect,

An important observation in supply chain management, known as the bullwhip effect, Quantifying the Bullwhi Effect in a Simle Suly Chain: The Imact of Forecasting, Lead Times, and Information Frank Chen Zvi Drezner Jennifer K. Ryan David Simchi-Levi Decision Sciences Deartment, National

More information

Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy

Microeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy Microeconomics Claudia Vogel EUV Winter Term 2009/2010 Claudia Vogel (EUV) Microeconomics Winter Term 2009/2010 1 / 25 Lecture Outline Part III Market Structure and Competitive Strategy 12 Monopolistic

More information

5 Market Games For Teaching Economics

5 Market Games For Teaching Economics 5 Market Games For Teaching Economics Progression 5 Market Games from website economics-games.com To be played separately or as a sequence: Market Game 1: Sunk costs, monopoly, and introduction to the

More information

Competition between Apple and Samsung in the smartphone market introduction into some key concepts in managerial economics

Competition between Apple and Samsung in the smartphone market introduction into some key concepts in managerial economics Competition between Apple and Samsung in the smartphone market introduction into some key concepts in managerial economics Dr. Markus Thomas Münter Collège des Ingénieurs Stuttgart, June, 03 SNORKELING

More information

6.042/18.062J Mathematics for Computer Science December 12, 2006 Tom Leighton and Ronitt Rubinfeld. Random Walks

6.042/18.062J Mathematics for Computer Science December 12, 2006 Tom Leighton and Ronitt Rubinfeld. Random Walks 6.042/8.062J Mathematics for Comuter Science December 2, 2006 Tom Leighton and Ronitt Rubinfeld Lecture Notes Random Walks Gambler s Ruin Today we re going to talk about one-dimensional random walks. In

More information

Oligopoly. Chapter 25

Oligopoly. Chapter 25 Chapter 25 Oligopoly We have thus far covered two extreme market structures perfect competition where a large number of small firms produce identical products, and monopoly where a single firm is isolated

More information

Chapter Three. Topics To Be Covered

Chapter Three. Topics To Be Covered Chater Three Alying the Sulyand-Demand Model Toics To Be Covered How the shaes of demand and suly curves matter? Sensitivity of quantity demanded to rice. Sensitivity of quantity sulied to rice. Long run

More information

IEEM 101: Inventory control

IEEM 101: Inventory control IEEM 101: Inventory control Outline of this series of lectures: 1. Definition of inventory. Examles of where inventory can imrove things in a system 3. Deterministic Inventory Models 3.1. Continuous review:

More information

A 60,000 DIGIT PRIME NUMBER OF THE FORM x 2 + x Introduction Stark-Heegner Theorem. Let d > 0 be a square-free integer then Q( d) has

A 60,000 DIGIT PRIME NUMBER OF THE FORM x 2 + x Introduction Stark-Heegner Theorem. Let d > 0 be a square-free integer then Q( d) has A 60,000 DIGIT PRIME NUMBER OF THE FORM x + x + 4. Introduction.. Euler s olynomial. Euler observed that f(x) = x + x + 4 takes on rime values for 0 x 39. Even after this oint f(x) takes on a high frequency

More information

C-Bus Voltage Calculation

C-Bus Voltage Calculation D E S I G N E R N O T E S C-Bus Voltage Calculation Designer note number: 3-12-1256 Designer: Darren Snodgrass Contact Person: Darren Snodgrass Aroved: Date: Synosis: The guidelines used by installers

More information

Cournot s model of oligopoly

Cournot s model of oligopoly Cournot s model of oligopoly Single good produced by n firms Cost to firm i of producing q i units: C i (q i ), where C i is nonnegative and increasing If firms total output is Q then market price is P(Q),

More information

Mikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Mikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Mikroekonomia B by Mikolaj Czajkowski Test 12 - Oligopoly Name Group MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The market structure in which

More information

UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION

UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION San Diego Gas & Electric Comany, ) EL00-95-075 Comlainant, ) ) v. ) ) ) Sellers of Energy and Ancillary Services ) Docket Nos. Into Markets

More information

The vertical differentiation model in the insurance market: costs structure and equilibria analysis

The vertical differentiation model in the insurance market: costs structure and equilibria analysis The vertical differentiation model in the insurance market: costs structure and equilibria analysis Denis V. Kuzyutin 1, Maria V. Nikitina, Nadezhda V. Smirnova and Ludmila N. Razgulyaeva 1 St.Petersburg

More information

Monopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition

Monopoly. Key differences between a Monopoly and Perfect Competition Perfect Competition Monopoly Monopoly is a market structure in which one form makes up the entire supply side of the market. That is, it is the polar opposite to erfect Competition we discussed earlier. How do they come about?

More information

Competition and Regulation. Lecture 2: Background on imperfect competition

Competition and Regulation. Lecture 2: Background on imperfect competition Competition and Regulation Lecture 2: Background on imperfect competition Monopoly A monopolist maximizes its profits, choosing simultaneously quantity and prices, taking the Demand as a contraint; The

More information

The Basics of Game Theory

The Basics of Game Theory Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #7 The Basics of Game Theory Friday - November 5, 2004 OUTLINE OF TODAY S RECITATION 1. Game theory definitions:

More information

chapter: Solution Oligopoly 1. The accompanying table presents market share data for the U.S. breakfast cereal market

chapter: Solution Oligopoly 1. The accompanying table presents market share data for the U.S. breakfast cereal market S209-S220_Krugman2e_PS_Ch15.qxp 9/16/08 9:23 PM Page S-209 Oligopoly chapter: 15 1. The accompanying table presents market share data for the U.S. breakfast cereal market in 2006. Company a. Use the data

More information

9 Repeated Games. Tomorrow, and tomorrow, and tomorrow, Creeps in this petty pace from day to day To the last syllable of recorded time Shakespeare

9 Repeated Games. Tomorrow, and tomorrow, and tomorrow, Creeps in this petty pace from day to day To the last syllable of recorded time Shakespeare 9 Repeated Games Tomorrow, and tomorrow, and tomorrow, Creeps in this petty pace from day to day To the last syllable of recorded time Shakespeare When a game G is repeated an indefinite number of times

More information

http://www.ualberta.ca/~mlipsett/engm541/engm541.htm

http://www.ualberta.ca/~mlipsett/engm541/engm541.htm ENGM 670 & MECE 758 Modeling and Simulation of Engineering Systems (Advanced Toics) Winter 011 Lecture 9: Extra Material M.G. Lisett University of Alberta htt://www.ualberta.ca/~mlisett/engm541/engm541.htm

More information

9.1 Cournot and Bertrand Models with Homogeneous Products

9.1 Cournot and Bertrand Models with Homogeneous Products 1 Chapter 9 Quantity vs. Price Competition in Static Oligopoly Models We have seen how price and output are determined in perfectly competitive and monopoly markets. Most markets are oligopolistic, however,

More information

Machine Learning with Operational Costs

Machine Learning with Operational Costs Journal of Machine Learning Research 14 (2013) 1989-2028 Submitted 12/11; Revised 8/12; Published 7/13 Machine Learning with Oerational Costs Theja Tulabandhula Deartment of Electrical Engineering and

More information

AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.

AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table. AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.

More information

Homework 4 Managerial Economics MBA, NCCU

Homework 4 Managerial Economics MBA, NCCU Homework 4 Managerial Economics MBA, NCCU 1.Referring to the following figure, suppose that Mercury Airlines marginal revenue and demand curves cross the marginal cost curve at quantities of 3,000 and

More information

ECON 312: Oligopolisitic Competition 1. Industrial Organization Oligopolistic Competition

ECON 312: Oligopolisitic Competition 1. Industrial Organization Oligopolistic Competition ECON 312: Oligopolisitic Competition 1 Industrial Organization Oligopolistic Competition Both the monopoly and the perfectly competitive market structure has in common is that neither has to concern itself

More information

How to Solve Strategic Games? Dominant Strategies

How to Solve Strategic Games? Dominant Strategies How to Solve Strategic Games? There are three main concepts to solve strategic games: 1. Dominant Strategies & Dominant Strategy Equilibrium 2. Dominated Strategies & Iterative Elimination of Dominated

More information

Compensating Fund Managers for Risk-Adjusted Performance

Compensating Fund Managers for Risk-Adjusted Performance Comensating Fund Managers for Risk-Adjusted Performance Thomas S. Coleman Æquilibrium Investments, Ltd. Laurence B. Siegel The Ford Foundation Journal of Alternative Investments Winter 1999 In contrast

More information

Two-resource stochastic capacity planning employing a Bayesian methodology

Two-resource stochastic capacity planning employing a Bayesian methodology Journal of the Oerational Research Society (23) 54, 1198 128 r 23 Oerational Research Society Ltd. All rights reserved. 16-5682/3 $25. www.algrave-journals.com/jors Two-resource stochastic caacity lanning

More information

Unit 3. Elasticity Learning objectives Questions for revision: 3.1. Price elasticity of demand

Unit 3. Elasticity Learning objectives Questions for revision: 3.1. Price elasticity of demand Unit 3. Elasticity Learning objectives To comrehen an aly the concets of elasticity, incluing calculating: rice elasticity of eman; cross-rice elasticity of eman; income elasticity of eman; rice elasticity

More information

L10. Chapter 13 Oligopoly: Firms in Less Competitive Markets

L10. Chapter 13 Oligopoly: Firms in Less Competitive Markets L10 Chapter 13 Oligopoly: Firms in Less Competitive Markets The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products

More information

Index Numbers OPTIONAL - II Mathematics for Commerce, Economics and Business INDEX NUMBERS

Index Numbers OPTIONAL - II Mathematics for Commerce, Economics and Business INDEX NUMBERS Index Numbers OPTIONAL - II 38 INDEX NUMBERS Of the imortant statistical devices and techniques, Index Numbers have today become one of the most widely used for judging the ulse of economy, although in

More information

6.254 : Game Theory with Engineering Applications Lecture 2: Strategic Form Games

6.254 : Game Theory with Engineering Applications Lecture 2: Strategic Form Games 6.254 : Game Theory with Engineering Applications Lecture 2: Strategic Form Games Asu Ozdaglar MIT February 4, 2009 1 Introduction Outline Decisions, utility maximization Strategic form games Best responses

More information

Measuring relative phase between two waveforms using an oscilloscope

Measuring relative phase between two waveforms using an oscilloscope Measuring relative hase between two waveforms using an oscilloscoe Overview There are a number of ways to measure the hase difference between two voltage waveforms using an oscilloscoe. This document covers

More information

FINAL EXAM, Econ 171, March, 2015, with answers

FINAL EXAM, Econ 171, March, 2015, with answers FINAL EXAM, Econ 171, March, 2015, with answers There are 9 questions. Answer any 8 of them. Good luck! Problem 1. (True or False) If a player has a dominant strategy in a simultaneous-move game, then

More information

Asymmetric Information, Transaction Cost, and. Externalities in Competitive Insurance Markets *

Asymmetric Information, Transaction Cost, and. Externalities in Competitive Insurance Markets * Asymmetric Information, Transaction Cost, and Externalities in Cometitive Insurance Markets * Jerry W. iu Deartment of Finance, University of Notre Dame, Notre Dame, IN 46556-5646 wliu@nd.edu Mark J. Browne

More information

Backward Induction and Subgame Perfection

Backward Induction and Subgame Perfection Backward Induction and Subgame Perfection In extensive-form games, we can have a Nash equilibrium profile of strategies where player 2 s strategy is a best response to player 1 s strategy, but where she

More information

Chapter 12 Monopolistic Competition and Oligopoly

Chapter 12 Monopolistic Competition and Oligopoly Chapter Monopolistic Competition and Oligopoly Review Questions. What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market

More information

INDIVIDUAL WELFARE MAXIMIZATION IN ELECTRICITY MARKETS INCLUDING CONSUMER AND FULL TRANSMISSION SYSTEM MODELING JAMES DANIEL WEBER

INDIVIDUAL WELFARE MAXIMIZATION IN ELECTRICITY MARKETS INCLUDING CONSUMER AND FULL TRANSMISSION SYSTEM MODELING JAMES DANIEL WEBER INDIVIDUAL WELFARE MAXIMIZATION IN ELECTRICITY MARKETS INCLUDING CONSUMER AND FULL TRANSMISSION SYSTEM MODELING BY JAMES DANIEL WEBER BS, University of Wisconsin - Platteville, 1995 MS, University of Illinois

More information

Computational Finance The Martingale Measure and Pricing of Derivatives

Computational Finance The Martingale Measure and Pricing of Derivatives 1 The Martingale Measure 1 Comutational Finance The Martingale Measure and Pricing of Derivatives 1 The Martingale Measure The Martingale measure or the Risk Neutral robabilities are a fundamental concet

More information

Optimal Risky Portfolios

Optimal Risky Portfolios Otimal Risky Portolio Otimal Risky Portolios When choosing the otimal allocation between a risk-ree asset and a risky ortolio, we have assumed that we have already selected the otimal risky ortolio In

More information

Figure: Computing Monopoly Profit

Figure: Computing Monopoly Profit Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restricted-input monopolies. D) sunk-cost monopolies. Use the following to answer

More information

Table of Contents MICRO ECONOMICS

Table of Contents MICRO ECONOMICS economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

More information

I. Noncooperative Oligopoly

I. Noncooperative Oligopoly I. Noncooperative Oligopoly Oligopoly: interaction among small number of firms Conflict of interest: Each firm maximizes its own profits, but... Firm j s actions affect firm i s profits Example: price

More information

Games and Strategic Behavior. Chapter 9. Learning Objectives

Games and Strategic Behavior. Chapter 9. Learning Objectives Games and Strategic Behavior Chapter 9 McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives 1. List the three basic elements of a game. Recognize

More information

Modeling Insurance Markets

Modeling Insurance Markets Modeling Insurance Markets Nathaniel Hendren Harvard April, 2015 Nathaniel Hendren (Harvard) Insurance April, 2015 1 / 29 Modeling Competition Insurance Markets is Tough There is no well-agreed upon model

More information

Location costs, product quality, and implicit franchise contracts Haucap, Justus; Wey, Christian; Barmbold, Jens

Location costs, product quality, and implicit franchise contracts Haucap, Justus; Wey, Christian; Barmbold, Jens www.ssoar.info Location costs, roduct quality, and imlicit franchise contracts auca, Justus; Wey, Christian; Barmbold, Jens Veröffentlichungsversion / Published Version Arbeitsaier / working aer Zur Verfügung

More information

Economics 200C, Spring 2012 Practice Midterm Answer Notes

Economics 200C, Spring 2012 Practice Midterm Answer Notes Economics 200C, Spring 2012 Practice Midterm Answer Notes I tried to write questions that are in the same form, the same length, and the same difficulty as the actual exam questions I failed I think that

More information

3.4. Bertrand Model Bertrand Model

3.4. Bertrand Model Bertrand Model atilde achado 1 In Cournot, firms decide how much to produce and the market price is set such that supply equals demand. But the sentence price is set is too imprecise. In reality how does it work exactly?

More information

Nash Equilibrium. Ichiro Obara. January 11, 2012 UCLA. Obara (UCLA) Nash Equilibrium January 11, 2012 1 / 31

Nash Equilibrium. Ichiro Obara. January 11, 2012 UCLA. Obara (UCLA) Nash Equilibrium January 11, 2012 1 / 31 Nash Equilibrium Ichiro Obara UCLA January 11, 2012 Obara (UCLA) Nash Equilibrium January 11, 2012 1 / 31 Best Response and Nash Equilibrium In many games, there is no obvious choice (i.e. dominant action).

More information

EC508: Microeconomic Theory Midterm 3

EC508: Microeconomic Theory Midterm 3 EC508: Microeconomic Theory Midterm 3 Instructions: Neatly write your name on the top right hand side of the exam. There are 25 points possible. Your exam solution is due Tuesday Nov 24, 2015 at 5pm. You

More information

GAMES FOR BUSINESS AND ECONOMICS

GAMES FOR BUSINESS AND ECONOMICS GAMES FOR BUSINESS AND ECONOMICS ROY/GARDNER Indiana University Nachrichtentechnische BibliotHek TUD Inv.-Nr.: /S.JOtUM- John Wiley & Sons, Inc. 5" New York Chichester Brisbane Toronto Singapore Contents

More information

Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers

Imperfect Competition. Oligopoly. Types of Imperfectly Competitive Markets. Imperfect Competition. Markets With Only a Few Sellers Imperfect Competition Oligopoly Chapter 16 Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Copyright 2001 by Harcourt, Inc. All rights reserved.

More information

An optimal batch size for a JIT manufacturing system

An optimal batch size for a JIT manufacturing system Comuters & Industrial Engineering 4 (00) 17±136 www.elsevier.com/locate/dsw n otimal batch size for a JIT manufacturing system Lutfar R. Khan a, *, Ruhul. Sarker b a School of Communications and Informatics,

More information

University of Oslo Department of Economics

University of Oslo Department of Economics University of Oslo Department of Economics Exam: ECON3200/4200 Microeconomics and game theory Date of exam: Tuesday, November 26, 2013 Grades are given: December 17, 2013 Duration: 14:30-17:30 The problem

More information

Microeconomic Theory Jamison / Kohlberg / Avery Problem Set 4 Solutions Spring 2012. (a) LEFT CENTER RIGHT TOP 8, 5 0, 0 6, 3 BOTTOM 0, 0 7, 6 6, 3

Microeconomic Theory Jamison / Kohlberg / Avery Problem Set 4 Solutions Spring 2012. (a) LEFT CENTER RIGHT TOP 8, 5 0, 0 6, 3 BOTTOM 0, 0 7, 6 6, 3 Microeconomic Theory Jamison / Kohlberg / Avery Problem Set 4 Solutions Spring 2012 1. Subgame Perfect Equilibrium and Dominance (a) LEFT CENTER RIGHT TOP 8, 5 0, 0 6, 3 BOTTOM 0, 0 7, 6 6, 3 Highlighting

More information

Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets

Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Nathaniel Hendren January, 2014 Abstract Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that

More information

Risk in Revenue Management and Dynamic Pricing

Risk in Revenue Management and Dynamic Pricing OPERATIONS RESEARCH Vol. 56, No. 2, March Aril 2008,. 326 343 issn 0030-364X eissn 1526-5463 08 5602 0326 informs doi 10.1287/ore.1070.0438 2008 INFORMS Risk in Revenue Management and Dynamic Pricing Yuri

More information

Reference Pricing with Endogenous Generic Entry

Reference Pricing with Endogenous Generic Entry Reference Pricing with Endogenous Generic Entry Kurt R. Brekke, Chiara Canta, Odd Rune Straume Aril 18, 2016 Abstract Reference ricing intends to reduce harmaceutical exenditures by increasing demand elasticity

More information

One-Chip Linear Control IPS, F5106H

One-Chip Linear Control IPS, F5106H One-Chi Linear Control IPS, F5106H NAKAGAWA Sho OE Takatoshi IWAMOTO Motomitsu ABSTRACT In the fi eld of vehicle electrical comonents, the increasing demands for miniaturization, reliability imrovement

More information

Economics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.

Economics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic. Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a

More information

Lab O3: Snell's Law and the Index of Refraction

Lab O3: Snell's Law and the Index of Refraction O3.1 Lab O3: Snell's Law and the Index of Refraction Introduction. The bending of a light ray as it asses from air to water is determined by Snell's law. This law also alies to the bending of light by

More information