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    Assignment 2 ECO 213

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    khan
    1. The document provides the instructions for Assignment 2 for the course ECO 213, which is due on May 27th, 2016 by 12 PM to Professor Zainab Vohra in the faculty lounge. 2. The assignment contains 5 questions regarding monopoly pricing, profit maximization for a firm, Cournot duopoly equilibrium, game theory payoffs for a duopoly, and external costs of pollution for dry cleaning. 3. Students must submit their assignment in hard copy and late assignments will not be accepted. Solutions will be posted by May 27th at 2 PM.

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    Assignment 2 ECO 213

    Uploaded by

    khan
    160 views2 pages
    1. The document provides the instructions for Assignment 2 for the course ECO 213, which is due on May 27th, 2016 by 12 PM to Professor Zainab Vohra in the faculty lounge. 2. The assignment contains 5 questions regarding monopoly pricing, profit maximization for a firm, Cournot duopoly equilibrium, game theory payoffs for a duopoly, and external costs of pollution for dry cleaning. 3. Students must submit their assignment in hard copy and late assignments will not be accepted. Solutions will be posted by May 27th at 2 PM.

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    1. The document provides the instructions for Assignment 2 for the course ECO 213, which is due on May 27th, 2016 by 12 PM to Professor Zainab Vohra in the faculty lounge. 2. The assignment contains 5 questions regarding monopoly pricing, profit maximization for a firm, Cournot duopoly equilibrium, game theory payoffs for a duopoly, and external costs of pollution for dry cleaning. 3. Students must submit their assignment in hard copy and late assignments will not be accepted. Solutions will be posted by May 27th at 2 PM.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    160 views2 pages

    Assignment 2 ECO 213

    Uploaded by

    khan
    1. The document provides the instructions for Assignment 2 for the course ECO 213, which is due on May 27th, 2016 by 12 PM to Professor Zainab Vohra in the faculty lounge. 2. The assignment contains 5 questions regarding monopoly pricing, profit maximization for a firm, Cournot duopoly equilibrium, game theory payoffs for a duopoly, and external costs of pollution for dry cleaning. 3. Students must submit their assignment in hard copy and late assignments will not be accepted. Solutions will be posted by May 27th at 2 PM.

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    © All Rights Reserved
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    ECO 213 (BS ACF 2K15 [A and B])

    Assignment 2

    Due Date: 27th May 2016 by 12 PM

    Instructor: Zainab Vohra

    Submission Instructions:

    1. You need to submit your assignment in hard copy (it could be hand written or typed) in the
    faculty lounge opposite room 107 in NBS ground floor. I will be in NBS from 11am to 12 noon
    to collect the assignments.
    2. Late assignments will not be accepted.
    3. Your assignment should be your individual work.
    4. The assignment solutions will be posted by Friday 27th May 2pm

    Question 1
    A monopolist is deciding how to allocate output between two geographically separated markets
    (East Coast and Midwest). Demand and marginal revenue for the two markets are
    P1 = 15- Q1
    P2 = 25-2Q2
    MR1 = 15-2Q1
    MR2 = 25-4Q2
    The monopolist's total cost is C = 5 + 3(Q1 + Q2). What are price, output, profits, marginal
    revenues, and deadweight loss for the following conditions?
    (i) if the monopolist can price discriminate?
    (ii) if the law prohibits charging different prices in the two regions?

    Question 2

    A firm faces the following average revenue (demand) curve:


    P = 120- 0.02Q
    where Q is weekly production and P is price, measured in cents per unit. The firm's cost function
    is given by C = 60Q + 25,000.Assume that the firm maximizes profits.
    a. What is the level of production, price, and total profit per week?
    b. If the government decides to levy a tax of 14 cents per unit on this product, what will be
    the new level of production, price, and profit?

    Question 3
    Suppose that two identical firms produce widgets and that they are the only firms in the market.
    Their costs are given by C1 = 60Q1 and C2 = 60Q2 where Q1 is the output of Firm 1 and Q2 the
    output of Firm 2. Price is determined by the following demand curve:
    P =300- Q
    where Q = Q1 + Q2
    a. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this equilibrium.
    b. Suppose the two firms form a cartel to maximize joint profits. How many widgets will be
    produced? Calculate each firm's profit.
    c. Suppose Firm 1 were the only firm in the industry. How would market output and Firm
    L's profit differ from that found in part (b) above?
    d. Returning to the duopoly of part (b), suppose Firm 1 abides by the agreement but Firm 2
    cheats by increasing production. How many widgets will Firm 2 produce? What will be
    each firm's profits?

    Question 4
    Two firms are in the chocolate market. Each can choose to go for the high end of the market
    (high quality) or the low end (low quality). Resulting profits are given by the following payoff
    matrix:
    Firm 2
    Low High
    Firm 1 Low -20,-30 900,600
    High 100,800 50,501

    a. What outcomes, if any, are Nash equilibria?


    b. If the managers of both firms are conservative and each follows a maximin strategy, what
    will be the outcome?
    (Hint: A maximin strategy is to maximize the minimum gain that one can make.
    c. What is the cooperative outcome?
    d. Which firm benefits most from the cooperative outcome? How much would that firm
    need to offer the other to persuade it to collude?

    Question 5
    In a market for dry cleaning, the inverse market demand function is given by P = 100 - Q and the
    (private) marginal cost of production for the aggregation of all dry-cleaning firms is given by
    MC = 10 + Q. Finally, the pollution generated by the dry cleaning process creates external
    damages given by the marginal external cost curve MEC = Q.
    a. Calculate the output and price of dry cleaning if it is produced under competitive
    conditions without regulation.
    b. Determine the socially efficient price and output of dry cleaning.
    c. Determine the tax that would result in a competitive market producing the socially
    efficient output.

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