## Question

2 (10 points). A drug company has a monopoly on a new patented medicine. The product can b, made in either of two plants. The costs of production for the two plants are MCI = 20 + 2Ql, an< MC2 = 10 + 5Q2 . The firm's estimate of the demand for the product is P = 20 - 3(Ql + Q2 )

How much should the firm plan to produce in each plant, and at what price should it plan to see) the product?

3 (10 points). Prove and explain in your own words the Folk theorem.

4 (10 points). Explain in your own words the Bertrand Paradox and one of the possible approaches< to solving it.

5 (10 points). Suppose that two firms competing in a Bertrand duopoly have 1narginal cost $4

Suppose further that ql and q2 are lower than 1/ 8. How much both firms should charge under proportional rationing?

6 (10 points). Ex plain why asym1netric information is a deterrent of collusion in a duopolistic coin petition.

7 (20 points). Explain why the kinked demand approach was not accepted for solving a dynamic, duopolistic competition problem and what was proposed as an alternative for solving such problemĀ·

Explain in detail what this alternative approach is, what is the problem it tries to solve, what are, the variables involved, and what is the mechanism (technicalities) used for solving.

8. (20 points)Consider a market for a homogeneous product with demand given by Q = 30 - P / 2 There are two firms, each with a constant marginal cost equal to 20.

a) Determine output and price under a Cournot equilibrium.

b) Compute the efficiency loss as a percentage of the efficiency loss under monopoly.

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