ECON%471%%Fall%2012%%Assignment%1%

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Due%October%2,%2012%(In%Class)%
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While&working&with&your&classmates&may&be&beneficial&and&is&encouraged,&I&
take&a&very&dim&view&of&identical&assignments.&&You&should&assume&that&a&
person&reviewing&your&answers&has&no&previous&knowledge&of&economics.&&As&
such,&your&answers&must&be&coherent,&intelligible&and&comprehensive.&&All&
graphs&should&be&graphed&to&scale,&clearly&labelled&and&easy&to&understand.&&
Please&consult&your&course&notes&and&the&text&prior&to&attempting&any&given&
question.&
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Question%1%(Short%Answer)%
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Answer&the&following&questions&making&use&of&whatever&tools&(diagrams,&etc.)&
you&feel&are&appropriate.&Please&limit&your&responses&to&one&page&per&short&
answer.&
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a) Explain&why&a&monopolist&defined&as&the&only&supplier&of&a&product&
may&not&be&(necessarily)&able&to&exert&market&power.&
b) What&is&the&difference&between&monopoly&rents&and&Ricardian&rents?&
c) Explain&the&factors&that&determine&the&extent&to&which&a&firm&engaged&in&
Cournot&competition&may&be&able&to&exert&market&power.&
d) Use&a&diagram&to&evaluate&the&following&statement:&&no&merger&to&
monopoly&could&ever,&by&definition,&bring&about&gains&in&efficiency&that&
offset&the&effects&of&the&merger&on&competition.&
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Question%2%
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The&(inverse)&demand&curve&for&a&market&is&given&by:&&! ! = ! !&
There&are&two&firms&(!, !)&present&in&this&market,&such&that:&&! = !! + !! &
Each&firm&!&(where&! = !, !)&has&a&cost&function&represented&by:&! !! = !!! + !! &
&
a) If&each&firm&competes&over&quantities&in&this&market,&find&the&
equilibrium&quantities&for&each&firm.&
b) Find&the&equilibrium&profits&for&each&firm.&
c) Suppose&that&firms&collude&in&this&market&(evenly&splitting&output).&Find&
the&collusive&outputs&and&profits&for&each&firm.&
d) Again,&suppose&the&firms&collude&and&evenly&split&output.&What&is&the&
marginal&cost&and&marginal&revenue&for&each&firm?&&What&do&these&
values&suggest&about&the&stability&of&the&collusive&agreement?&
e) If&firm&!&is&certain&that&firm&!&will&honour&the&collusive&agreement,&what&
level&of&output&will&firm&!&choose?&What&are&the&resulting&profits&for&
firm&!&and&!&under&this&scenario?&
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Question%3&
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The&(inverse)&demand&curve&for&a&market&is&given&by:&&! ! = ! !&
There&are&three&firms&engaged&in&quantity&competition&present&in&this&market.&
Each&has&a&cost&function&represented&by:&&! !! = !! !! &
&
a) Solve&for&the&three&best&response&functions&in&terms&of&the&other&firms&
output.&For&instance&solve&for&!! = !! (!! , !! )&etc.&
b) Solve&for&the&Cournot&equilibrium&quantities&(e.g.&!! , !! , !! &in&terms&of&
the&parameters).&
c) Suppose&that&!! = 2, !! = 3, !! = 4.&Evaluate&the&Cournot&equilibrium&
quantities&and&find&the&equilibrium&profits&for&each&firm.&
d) Suppose&that&firm&2&merges&with&firm&3&and&that&entry&by&other&firms&is&
prohibited&in&this&market.&The&new&merged&firm,&denoted&!,&is&able&to&
produce&its&entire&output&using&firm&2s&technology&(and&is&therefore&
subject&to&firm&2s&cost&function).&What&are&the&new&output&quantities&
and&profits&for&the&merged&firm&and&for&firm&1?&
e) Are&consumers&made&better&off&by&this&merger?&Explain.&
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Question%4&
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Consider&the&following&game:&
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&&&&A&&&&&&&&&&&&&B&&&&&&&&&&&&C&&&&&&&&&&&&&&D&
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1,8&
2,6&
7,7&
a& 7,7&
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2,3&
4,4&
0,3&
b& 6,1&
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0,0&
3,3&
1,5&
c& 8,2&
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d& 7,4&
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5,5&
3,2&
4,3&
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a) Find&the&pure&strategy&Nash&equilibria&for&this&game.&
b) What&is&the&set&of&rationalizable&strategies&for&this&game?&
c) What&is&the&most&likely&equilibrium&for&this&game?&Explain.&
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Question%5&
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Consider&the&following&information&about&wireless&subscriber&market&&
shares&for&Alberta,&Quebec&and&Saskatchewan&for&20111&
&
Bell%
New%
Province%
Telus% Rogers%
SaskTel%
Group%
Entrants%
Alberta%
22%&
49%&
26%&
2%&
0%&
Quebec%
34%&
28%&
31%&
7%&
0%&
Saskatchewan%
8%&
8%&
13%&
0%&
72%&
&
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a)&Calculate&the&!!"&and&!"! &for&each&province&(for&these&calculations,&assume&
the&share&for&New&Entrants&represents&a&single&firm).&
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b)&Which&province&has&the&most&highly&concentrated&wireless&market?&&Explain.&
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&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
1&Selected&values&drawn&from&Table&5.5.5&&Wireless&subscriber&market&share,&
by&province&(2011)&&
CRTC&&Communications&Monitoring&Report&2012&
http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2012/cm
r2012.pdf&
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09#20#2012&#&AHW&

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