you should only answer question 1 and question 4

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 âˆ’ 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 monopolistâ€™s inverse demand function is

p = 50 âˆ’ 4q. The monopolist has no fixed cost and his marginal cost is $5 at all levels of output.

a) Please determine this monopolistâ€™s profit maximizing price and quantity. [10pts]

b) Please determine this monopolistâ€™s maximized profit.[10pts]

c) Please express this monopolistâ€™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 âˆ’ 3×1 in the first market and p2 = 115 âˆ’ 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 âˆ’ 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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