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There are two firms on the market, one with marginal cost of $20 per unit of output, the other with marginal cost of $40 per unit. The inverse demand function is p = 120 – Q, where Q is the total amount offered to consumers. (a) (15 pt) The firms simultaneously decide how much to produce. Find each firm's output and the market price. (b) (15 pt) Now suppose the less efficient firm was on the market first. When deciding how much to produce this firm anticipates that the less efficient firm will enter the market. Find the firms' outputs and the resulting market price. (20 points) Andrew is on a game show. The probability of winning $0 is 3/4, of winning $100 is 3/16, and of winning $500 is 1/16. His utility function is u(x) = x, where x is the dollar amount he wins. (a) (5 points) Calculate the expected value of the lottery. (b) (5 points) Calculate Andrew's expected utility from the lottery. (c) (5 points) Calculate his certainty equivalent of the lottery. (d) (5 points) Is Andrew risk averse, risk neutral, or risk loving? There are two firms on the market, one with marginal cost of $20 per unit of output, the other with marginal cost of $40 per unit. The inverse demand function is p = 120 – Q, where Q is the total amount offered to consumers. (a) (15 pt) The firms simultaneously decide how much to produce. Find each firm's output and the market price. (b) (15 pt) Now suppose the less efficient firm was on the market first. When deciding how much to produce this firm anticipates that the less efficient firm will enter the market. Find the firms' outputs and the resulting market price. (20 points) Andrew is on a game show. The probability of winning $0 is 3/4, of winning $100 is 3/16, and of winning $500 is 1/16. His utility function is u(x) = x, where x is the dollar amount he wins. (a) (5 points) Calculate the expected value of the lottery. (b) (5 points) Calculate Andrew's expected utility from the lottery. (c) (5 points) Calculate his certainty equivalent of the lottery. (d) (5 points) Is Andrew risk averse, risk neutral, or risk loving?
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Managerial Economics and Business Strategy
ISBN: 978-0071267441
7th Edition
Authors: Michael R. baye
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