Question: Consider ano differentiatedproduct market with inverse demand function P = 62 - 2 Q .Assume that all firms facethe total cost function C=2qi , where

Consider ano differentiatedproduct market with inverse demand functionP= 62 - 2Q.Assume that all firms facethe total cost function C=2qi, whereqdenotes the firm's production.Answer the following questions.

a)Suppose that the market is served by a monopolist who can only charge uniform liner prices according to the standard monopoly model. Find the monopoly equilibrium (price, quantity, profit& Lerner Index).N.B.a monopolist may maximise profit at price higher than marginal cost.

b)Suppose now that the two firms compete in quantities according to the Cournot model. Find the Cournot-Nash equilibrium (quantities, price, profits& Lerner Index).

c)Assumean oligopolisticmarketwithtwo identical firms which compete in prices according to the Bertrand model. Find the Bertrand-Nash equilibrium (prices, quantities, profits& Lerner Index) .

d)Compare Monopoly, Bertrand and Cournot equilibria in terms of market power&industry profits. Comment on your results focusing on:i) the relationship between industry concentration and firms' market power;ii) the effect of different modes of competition onindustry profit, andconsumer's socialwelfare.

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