For 12-13, First state if the statement is True or False. Then, give a brief explanation.

(12) (3 points) When demand is relatively inelastic, an increase in price increases revenue.

(13) (3 points) The monopolist should increase production as long as its marginal cost decreases with output. D(p) = 64 2p.

PART II. Now take the same demand function as in Part I but imagine that the market has two Firms instead of 1. Also assume that the marginal cost of each Firm is equal to 4. Market structure is therefore characterized as a duopoly. Suppose that Firms compete by choosing their output levels simultaneously.

(14) (2 points) Write down the proOt expressions of Firms 1 and 2.

(15) (4 points) Derive the best-response functions of Firms 1 and 2.

(16) (3 points) Plot the best-response functions of Firms 1 and 2.

(17) (2 points) Find the output choice of each Firm. Show it on the graph you drew in (17). For 18-19, First state if the statement is True or False. Then, give a brief explanation.

(18) (3 points) Oligopolies create less deadweight loss than monopolies.

(19) (3 points) Consider a duopoly where Firms compete by choosing quantities one after the

other. The Firm which makes its output choice First, enjoys more profits as it can set a higher price.