116 views

Uploaded by Franz Xaver

- ch09 pp
- Lecture 6
- Information Economics from Jehle and Reny.docx
- Jehle and Reny Solutions
- Mathematics for Economists
- Lecture 6
- Jehle Reny Solutions_All
- In Class Homework Ch 2
- ECO100_Indart_TT3_2011W.pdf
- 20140909 BT10203 Microeconomics-Course Outline
- Solutions Jehle Rany
- Mas Colell Copia
- Microeconomie Livre Micro de Jehly Solutionnaire
- Advanced Microeconomics Analysis Worked Solutions Jehle Reny
- PS1solution
- Econ 140 Chapter 11
- Barbara Bregstein - Easy Spanish Step-By-Step-McGraw-Hill (2005)
- QJE Kamien Zang
- Dornbusch 6e chapter1
- The Chicago School of Antitrust Analysis

You are on page 1of 4

Problemset 2

May, 11 2010

This problem set is designed to give you the opportunity to review rm behavior in

all

perfect and imperfect competition frameworks. You are asked to solve exercises

listed below. Be prepared to present your solutions in class either on the blackboard

or the overhead projector.

We encourage you to team up to groups. However, in order to obtain points in

class, you musthand in your solution individually and be prepared to

present it and defend it on your own . Please hand in your solution with our

Monday May 10, 2010

secretary (Schloss, Museumsügel, 019) no later than

11 a.m. . Please do not forget to note your name and matriculation number on

your solution sketch.

Jehle, Georey A., and Philip J. Reny (2000). Advanced Microeconomic Theory.

Addison Wesley, Chapter 4.

Exercise 1: Short-run Equilibrium

Consider a competitive industry composed of J identical rms. Firms produce

output according to the Cobb-Douglas technology, q = xα k1−α , where x is some

variable input such as labor, k is some input such as plant size, which is xed

in the short run, and 0 < α < 1. Let wx and wk denote the price of labor and

capital, respectively. p is the price of the nal good. Suppose α = 1/2, wx = 2,

and wk = 1/2, and k = 1. Market demand is given by q d = 240/p.

1. Set up the cost function and the short-run prot maximization problem of

the rm.

2. Show that the rm's short-run maximum prots are

α

(1)

1 α

π j = p 1−α wxα−1 α 1−α (1 − α)k − wk k.

MSc IBE - SS2010

Jung & Gröschl

3. Derive an expression for output supply per rm in the short-run equilibrium

as a function of the nal good price p.

4. What will the short-run market supply function with J = 60 rms be?

5. Solve for the short-run equilibrium price p, market quantity q , output per

rm q j , and rm prots π j .

6. Illustrate the short-run equilibrium at the market level in a price - quantity

gure. Explain.

7. Use the cost function to derive expressions for short-run marginal costs and

the short-run average costs as a function of q . Depict the short-run marginal

cost curve and the short-run average cost curve in a price - quantity gure.

Use the gure to show whether a rm makes negative, zero, or positive

prots.

In the long run, rms may enter in response to positive prots and incumbent

rms are free to choose their plant size optimally.

1. Explain the concept of constant-returns to scale.

2. Explain the conditions that must hold in the long-run equilibrium.

3. Use the prot function given in Exercise 1 and α = 1/2, wx = 2, and wk = 1.

Determine the optimal long-run equilibrium market price p̂ assuming that

plant size k > 0.

4. Solve for the long-run equilibrium (number of rms, total quantity produced,

quantity produced by each rm, prots of rm j ) using the market demand

function given in exercise 1. Assume that plant size is k = 1. Explain the

mechanisms at work.

5. Show that in the long-run equilibrium the number of rms is indeterminate

when all rms in the industry share the same constant returns-to-scale tech-

nology and face the same factor prices.

MSc IBE - SS2010

Jung & Gröschl

In a Cournot duopoly in a market for a homogeneous good, there are J = 2

rms. Entry by additional rms is eectively blocked. Each duopolist has constant

average and marginal costs,

C 1 (q 1 ) = c1 q 1 , C 2 (q 2 ) = c2 q 2 , and 0 ≤ c1 ≤ c2 (2)

J

(3)

X

p=a−b qj ,

j=1

1. Write down the prot functions for rm 1 and rm 2.

2. Show that rm 1 will have greater prots and produce a greater share of

market output than rm 2 in the Nash equilibrium.

Duopolists producing substitute goods q1 and q2 face inverse demand schedules:

1

p1 = 20 + p2 − q1 (4)

2

and

1

p2 = 20 + p1 − q2 , (5)

2

respectively. Each rm has constant marginal costs of 20 and no xed costs. Each

rm is a Cournot competitor in price, not quantity.

1. Compute the Cournot equilibrium in this market, giving the equilibrium

price and output for each good.

2. Explain the Bertrand paradox and compute the result that would follow if

the rms were Bertrand competitors.

MSc IBE - SS2010

Jung & Gröschl

Consider market demand to be p = a − bq for total market output q . Firms are

identical, with marginal cost c ≥ 0.

1. Give a denition for consumer and producer surplus.

2. When each rm produces the same output q/J , what will total surplus W =

CS + P S , as a function of total output be?

4. Use a gure to argue whether the price-quantity pair on the demand curve

in this competitive case is a Pareto ecient outcome. Explain.

A monopolist faces linear demand p = a − bq and has a cost C(q) = cq + f .

1. Explain how a monopolist sets the price.

2. Derive the equilibrium price and quantity.

3. Illustrate the monopoly equilibrium in a price,cost-quantity gure.

4. Derive the price elasticity of demand ε. Show how the monopoly markup

depends on the elasticity of demand.

5. Derive the dead weight loss (DWL) due to the monopoly. Show how this

depends on ε.

- ch09 ppUploaded byPranshu Sairaha Srivastava
- Lecture 6Uploaded byRambabu Undabatla
- Information Economics from Jehle and Reny.docxUploaded byAbby Peralta
- Jehle and Reny SolutionsUploaded byKevin Andrew
- Mathematics for EconomistsUploaded byblakmetal
- Lecture 6Uploaded byROSHAN_25
- Jehle Reny Solutions_AllUploaded bythangksg07
- In Class Homework Ch 2Uploaded byTiago Matos
- ECO100_Indart_TT3_2011W.pdfUploaded byexamkiller
- 20140909 BT10203 Microeconomics-Course OutlineUploaded byJass Lloyd Azliezan
- Solutions Jehle RanyUploaded bypatipet2753
- Mas Colell CopiaUploaded bymmonturiol
- Microeconomie Livre Micro de Jehly SolutionnaireUploaded byramcesse89
- Advanced Microeconomics Analysis Worked Solutions Jehle RenyUploaded byJuan Solorzano
- PS1solutionUploaded byColin Jennings
- Econ 140 Chapter 11Uploaded byfati159
- Barbara Bregstein - Easy Spanish Step-By-Step-McGraw-Hill (2005)Uploaded byGagu Laur
- QJE Kamien ZangUploaded byLech Kalina
- Dornbusch 6e chapter1Uploaded bykushal
- The Chicago School of Antitrust AnalysisUploaded bympq91
- chap014sUploaded byPhúc Anh
- Basic ConceptsUploaded byसन्तोष भण्डारी
- Ch Cost ConceptUploaded byhitmaaaccount
- Market StructureUploaded byShashwat Churiwala
- ppt_pdfUploaded bypalashndc
- Fast Fashion: The Value of Fast Fashion - Rapid production, Enhanced Design and Stratefic Consumer BehaviourUploaded byJohn Paul Hodge
- pingpdf.com_answers-to-chapter-8-exercises-luis-cabral.pdfUploaded byMehdi Ben Slimane
- CHAPTER 8Uploaded byClifford Marco Arimado
- Report on production ConceptUploaded byAhmed Faizan
- The Expanding Market for Herbal, Medicinal and Aromatic PlantsIn Nigeria and the International Scene - Copy.pdfUploaded byPankajKumar

- EO1995-2000-Lawrence_0008Uploaded byThao Tran
- 1819 Fed School Code ListUploaded byoperafish
- 44-74110APP_ElementalAnalysisofSoilsUploaded byAnonymous FW5PVUp
- MIT15_053S13_lec19.pdfUploaded byShashank Singla
- Chapter 4.docxUploaded byvivianguo23
- EXP10 ChromatographyUploaded byKiara Sy
- Vibration CriteriaUploaded bykrishnasrikanth
- Eigenvalue&VectorUploaded byMochammad Riski Febi Setiawan
- documents-08_ECONOMICS.pdfUploaded bySiva Kumar
- Ben Davis on the Age of Semi-Post-Postmodernism - Artnet MagazineUploaded bySarah Browne
- Intraocular gas in vitreoretinal surgeryUploaded bycurlyfriez
- A Thousand Miles in the Rob Roy Canoe on Rivers and Lakes of Europe by MacGregor (With Images)Uploaded byScott
- Cad Welding12Uploaded byAdeoye Okunoye
- Aim of MarketingUploaded byWilliams Taiwo
- 206_SheetUploaded bykalin
- Transportation Statistics: jts v3 n1Uploaded byBTS
- Mail for Exchange for Asha IT Admin GuideUploaded byTanzeel Liaqat
- Visitor Manual FinalUploaded byAntonio Zafra
- IMF Flyer 100-200.pdfUploaded bybinhjuki
- AppE-HenessyUploaded byCharchica Agrawal
- QS1000Uploaded byManolis Founargiotakis
- Super Compilation EST Nov 2007 Boards.xlsUploaded byJohn Paul M. Tubig
- Dec 2017 CFA Level 1 Schedule[1]Uploaded bySyed Ahmad
- Definitions of Globalization - A Comprehensive Overview and a Proposed DefinitionUploaded byAvinash Boodhoo
- Kuratko8eCh02Uploaded bywaqas
- Indigenous Knowledge on Bio Resources Management for Livelihood of the People of Kodikulam Village, Madurai East, Tamilnadu, IndiaUploaded byAnonymous kw8Yrp0R5r
- Experiment 2.pdfUploaded byNazifi Afanddi
- Africana, 5, Especial, 2011Uploaded byEduardoBelmonte
- magnetic molding.pdfUploaded bysengcan
- Excersise 1Uploaded byOscar Lidholm