2. The following four figures show different possible patterns in data describing the widget industry. For each figure, there is a question. a. What oligopoly model could generate the following data? Explain. Price 2 3 4 5 6 Number of firmsPage of 4 - ZOOM + b. Suppose that the widget industry is a duopoly. What model would generate the following market share data for Firm 1? What set of events explains the movements of Firm 1's market share over time, under this model. Firm 1 share % 100 50 Time c. Does the following figure imply that the widget industry has barriers to entry? Explain. Industry Profit Unit costs d. Suppose that you know the equilibrium price of widgets and also outputs for each firm. However, you do not know marginal cost. What model could generate the data in the following figure for Firm 1? Explain. Firm 1 Price 50 2 # of widget producers3. Briey answer the following questions: a. Should rate of return be calculated using the book value of assets, or the replacement cost of assets? Explain. b. Suppose that Firm 1 and Firm 2 are similar in their cost structure, product lines, and customer bases. However, Firm 1 has a return on equity of 18%, whereas Firm 2 has a return on equity of only 10%. What could cause the difference? Explain. c. How does economic depreciation differ from accounting depreciation? Explain. 4. Suppose that the widget industry is a duopoly and is well described by the \"pure\" Bertrand model. This includes the assumption that either rm can serve the entire market at marginal cost pricing. The market demand curve is given by: QD = 300 lOP. a. Suppose that both firms have a marginal cost equal to 3. What is the equilibrium price? Explain. b. Now assume that Firm 1 is able to lower its marginal cost to 2, while Firm 2 still has a marginal cost equal to 3. What is the equilibrium price now? Explain. c. Now assume that both firms have marginal costs of 3. Suppose that each has a binding capacity constraint of 135 units. What is the market equilibrium price? Explain. d. Assume that Firm 1 has a marginal cost of 2 and a capacity constraint of 50 units of output. Firm 2 has a marginal cost of 3, but has unlimited capacity. What is the equilibrium price (or prices)? Explain. 5. Consider the following game in extensive form, with Players 1 and 2. U . (8,2) 2 U D . (6,3) 1 U . (5,3) d 2 D . (9,4) a. Write this game in normal form and circle any Nash equilibria. b. Which of these Nash equilibria is subgame perfect? Explain. c. Using the "folding back" technique, what actions do the players take along a subgame perfect equilibrium path? Explain. d. Would it benefit Player 2 to pre-commit to a strategy? Explain. e. Change the payoffs so that it pays Player 2 to pre-commit to U. Prove your answer. Explain