ECO380: Markets Competition and Strategy — Fall 2024 Graded Problem Set #2Python

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Java Python ECO380: Markets, Competition, and Strategy — Fall 2024

Graded Problem Set #2

Due: Nov 13, 2024, 11:59 PM

Please use Crowdmark to submit your answers as a PDF file. It is recommended that you use LATEX to write your solution. Read each question carefully and answer each part as best as you can. Partial credit will be given, so please show your work. Each problem contains several parts. Number each part of your answers.

Q1. (15 pts) The market is served by two firms, firm 1 and firm 2. The two firms supply identical products and compete by simultaneously setting prices. Inverse market de- mand is PD (Q) = 10 − Q, where Q is the sum of the firms’ sales. The marginal cost of either firm is $6.

(a) (5 pts) How many units of the good are sold in the Nash equilibrium?

(b) (5 pts) Suppose the marginal cost of firm 1 decreases to $4. Find the new Nash equilibrium and calculate firm 1’s equilib