1. ECO 550 Week 4 Chapter Questions
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week-4-chapter-questions/
Week 4 Chapter 7 Question 1
1. In the model of a dominant firm, assume that the fringe supply curve is given by +0.2 P,
where P is market price and Q is output. Demand is given by – P.
What will price and output be if there is no dominant firm? Now assume there is a
dominant firm, whose marginal cost is constant at $6. Derive the residual demand curve
that it faces and calculate its profit-maximizing output and price.
Week 4 Chapter 7 Question 10
A selfless person approaches Jones and Smith with a $100 bill and offers to sell it to the
highest bidder, but both the winning and losing bidders must pay her their bids. So if Jones
bids $2 and Smith $1 they pay a total of $3, but Jones get the money, leaving him with a net
gain of $98 and Smith with -$1. If both bid the same amount, the $100 is split evenly
between them. Assume that each of them has only two $1 bills on hand, leaving three
possible bids: $0,$1,$2. Write out the payoff matrix for this game, and then find its Nash
equilibrium.