Question: how to do qn 5? 4. Suppose we have a two-product firm under the circumstances of pure competition. The firm's cost function is given as

how to do qn 5?

4. Suppose we have a two-product firm under the circumstances of pure competition. The firm's cost function is given as C = 201 + Q1Q2 + 202 (a) Write down the firm's revenue function. What are the endogenous and exogenous vari- ables? (b) If profit is defined as 7 = R - C. Write down is the profit function for this firm. (c) Now find the optimum Q1 and Q2. (d) How do we know we are maximizing profit? 5. In this problem, assume that the firm from the previous question is now a monopolistic firm (a) Now what are the endogenous and exogenous variables. (b) Now the demand facing the monopolistic firm are as follows: Q1 = 40 - 2P1 + P2 (1) Q2 = 15 + P1 - P2 ( 2 ) What does these demand curves reveal about goods Q1 and Q2. (c) Now from Equations 1 and 2 treat Q1 and Q2 are parameters, apply Cramer's rule to solve for P1 and P2. (d) Suppose the cost function is C = Q; + Q1Q2 + Q2. Write down the profit function. (e) Find the equilibrium quantities, prices and profit. Check second derivatives that the solution is a maximum point

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