Part C PLEASE

Problem 1 Suppose the market for ice cream (here assumed to be a homogeneous good) is operated by 4 firms, indexed by i=1,2,3,4. Let qi be the quantity of ice cream supplied by firm i. Suppose the demand is given by p=682Q, where Q=i=1nqi. Let ci be the constant marginal cost of firm i. Suppose that firm 1 is able to produce ice cream at a much lower cost than its competitors because firm 1 is located on top of a mountain. Therefore the costs of refrigeration are much lower. Therefore, c1=6 while c2=c3=c4=12. (a) (0.5 points) Assume firms compete in a Cournot setting. Calculate equilibrium quantities. Also derive the price and profits that are associated with this equilibrium. (b) (0.5 points) What happens to the equilibrium quantity of firm i, if its own marginal cost (ci) increases (while the marginal cost of its competitors stays the same)? What happens to the equilibrium quantity of its competitors? (Hint: analyse firm's best response functions) (c) (1 points) What happens if firms compete in a Bertrand setting? Derive the prices and profits for all four firms. Which form of competition, in prices or quantities, generates the highest consumer welfare? Problem 1 Suppose the market for ice cream (here assumed to be a homogeneous good) is operated by 4 firms, indexed by i=1,2,3,4. Let qi be the quantity of ice cream supplied by firm i. Suppose the demand is given by p=682Q, where Q=i=1nqi. Let ci be the constant marginal cost of firm i. Suppose that firm 1 is able to produce ice cream at a much lower cost than its competitors because firm 1 is located on top of a mountain. Therefore the costs of refrigeration are much lower. Therefore, c1=6 while c2=c3=c4=12. (a) (0.5 points) Assume firms compete in a Cournot setting. Calculate equilibrium quantities. Also derive the price and profits that are associated with this equilibrium. (b) (0.5 points) What happens to the equilibrium quantity of firm i, if its own marginal cost (ci) increases (while the marginal cost of its competitors stays the same)? What happens to the equilibrium quantity of its competitors? (Hint: analyse firm's best response functions) (c) (1 points) What happens if firms compete in a Bertrand setting? Derive the prices and profits for all four firms. Which form of competition, in prices or quantities, generates the highest consumer welfare