Industrial Organization And Price Analysis

1. Consider the market for tomatoes, which are considered to be homogenous products. There are only two
   producers in the market. The cost functions of producer 1 and producer 2 are given by TC1 (q1) = q1
   and TC2 (q2) = 4q2; respectively. Let the demand be p = 10 – Q: Find the profit level of each producer
   in a Cournot-Nash equilibrium.
2. Consider a Cournot game with homogenous products. There are N firms in the market, and N is fixed. The
   demand function is given by p (Q) = 100 – Q and the cost function is given by TC (q) = 2q: First,
   find a competitive equilibrium outcome (the market price, quantity of each firm, and profit). Then, calculate the
   price, quantity, and profit in the Cournot-Nash equilibrium. What is the relationship between the competitive
   equilibrium outcome and the outcome in the Cournot-Nash equilibrium when N is large?
3. Consider the market for potatoes, which are considered to be homogeneous products. There are two identical
   producers in the market. Demand is given by Q(p) = 15 – p. Their marginal cost is 3. What is the Bertrand-Nash
   equilibrium?

Sample Solution

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