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Econ 2200 Intermediate Microeconomics – Summer,2022
Assignment 4
Due 11:59pm June 23th,2022 on Brightspace
Question 1.[25pts] Suppose the cheese business is a competitive industry. All cheese
manufacturers have the short-run cost function T C = q 2 + 9, while demand for cheese in the
town is given by Q = 402 − P . Suppose there are currently 400 firms in town.
a). What is the short-run equilibrium for a single firm? [10pts]
b). Do firms make positive profits at this market equilibrium?[10pts]
c). How does the number of cheese manufacturers change in the long run? (Increase/decrease/does
not change)[5pts]
Question 2.[30pts] Suppose the demand for a monopolist’s inverse demand function is
p = 50 − 4q. The monopolist has no fixed cost and his marginal cost is $5 at all levels of output.
a) Please determine this monopolist’s profit maximizing price and quantity. [10pts]
b) Please determine this monopolist’s maximized profit.[10pts]
c) Please express this monopolist’s profits as a function of his output.[10pts]
Question 3.[15pts] A monopolist sells in two markets. The demand curve for her product
is given by p1 = 141 − 3×1 in the first market and p2 = 115 − 2×2 in the second market, where
xi is the quantity sold in market i and pi is the price charged in market i. She has a constant
marginal cost of production $3, and no fixed costs. She can charge different prices in the two
markets. What is the profit maximizing combination of quantities for this monopolist?
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Question 4.[30 pts] In a homogeneous product Cournot market, each firm has a marginal
cost M C = 10 + qi , where i = 1, 2. The market demand curve is P = 50 − Q, where Q = q1 + q2 .
a) Determine the profit maximizing reaction functions for firm 1 and 2.[10pts]
b) Determine the Cournot equilibrium price and quantities for each firm?[10pts]
c) Compute the maximum profit for each firm.[10pts]
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