Mail - Rya X Self Refle X D2L EC370-wi X D2L Oligopoly X G Suppose 1 X C 15b) why x C | Chegg.c x & Watch Far X A&F Checkout X NNetflix X Montreal ( X K C mylearningspace.wlu.ca/d21/le/content/459685/viewContent/3196127/View G SB * OR Update : EC370-winter 2021 FINAL Q T V 5 of 6 Automatic Zoom > > 1. [27] It's lockdown 6.0 and there are two drone-haircut service providers in the market: Uno and Dos (denoted with the subscripts u and d, respectively). The market demand for drone haircuts (they only offer bowl-cuts so the services being sold are homogenous) EC 370 - Winter 2021 Final Exam is described be the function Q (p) = 800 - 2p where Q is the total industry output of drone haircuts. The two companies have the cost functions Cu(qu) = qu and Ca(qa) = qa, respectively. a. [9] If Uno and Dos are competing on quantity and choosing their output at the same time: i. [4] Write the best response function of each one. ii. [3] Why do we call these best response functions? How does this relate to the idea of a Nash-Equilibrium? iii. [2] If Uno and Dos produced complements rather than substitutes, what would be the implications for each of the firms' best-response functions?Mail - Rya X Self Refle X D2L EC370-wi X D2L Oligopoly X G Suppose 1 X C 15b) why x C | Chegg.c x & Watch Far X A&F Checkout X NNetflix X Montreal ( X K C mylearningspace.wlu.ca/d21/le/content/459685/viewContent/3196127/View G SB * OR Update : EC370-winter 2021 FINAL Q T V 5 of 6 + Automatic Zoom > > would be the implications for each of the firms' best-response functions? b. [18] Suppose the CEOs of the two firms come to the realization that if they join forces (form a cartel), they would each be better off than under Cournot competition which gives them the following profits: Du = la = 19,591.6 i. [6] If they collude, how many bowl-cuts will they produce? What will the firms' profits be under such an arrangement? ii. [4] if Dos is producing at the collusive output level, what would Uno's profit maximizing output level be? Assuming the market price responds instantaneously to the level of aggregate output, how much profit will Uno earn? iii. [8] If Uno has a discount factor of S = 0.4, could a Grim Trigger strategy with Cournot profits as a punishment induce it to collude with Dos if they have an infinitely repeated interaction? In addition to showing your calculations, explain in words why or why not. 2. [10] The City of Waterloo is trying to encourage people to spend time outdoors this summer so it is considering whether to allows food trucks to serve patrons at public parks. The cost of operating a food-truck is $4,000 per month. Suppose that if n food- trucks operate, the total monthly revenue from food-trucks in public parks is $2,000(20n - n2)