Please answer with readable text explain your answers 4 Tru

Please answer with readable text & explain your answers.

4) True/False Questions (Provide brief explanations) (5 points each) a) Consider two firms producing complementary products and face a linear demand function of the form: Pi = A-qi-0? E {1,2). If their strategies are strategic complements, these firms engage in price (i.e., Bertrand) competition. b) Microsoft offers a combined software package that includes both MS Word and MS Excel at a price of 1000TL rather than selling them separately at a price of 750TL each. This is an example of second degree price discrimination. c) A market has 5 firms. One of them has a market share of 50%, a second 20%, and the other three 10% each. The HHI index of the market equals to 0.32. d) Let the market has an exponential inverse demand function of the form p = e-Q, where p is the market price and Q is the output level. Assume that there is a monopoly firm and its production cost is 0. The equilibrium profit of the monopolist is-. e) Let p 10-2(q1 + q2) and consider two firms compete în quantities. Let the total cost of firm i be given by TC(a) 2q. The equilibrium Lerner index is given by 1/3

Solution

Ans b)

Quantity discounted on bulk purchases cones under second price discrimination Hence given example is true

Ans c)

HHI index is calculated by squaring share and summing it over all the firms

(.5)^2+(.2)^2+3(.1)^2=.25+.04+.03=.32

Hence True

Ans d)

For Monopoly

MR=MC

lnP=-Q

ln(1/P)=Q

R=PQ=exp(-Q)Q

MR=exp(-Q)+Q(-1)exp(-Q)=(1-Q)exp(-Q)=0

if Q=1 then it is possible

Profit=Rev-Cost=P*Q=exp(-1)(1)-0=1/e

Hence true

Ans e)

MR=MC

pq1=10q1-2q1^2-2q1*q2-

MR=10-4q1-2q2=4q1

10-2q2=8q1

and  

10-2q1=8q2

10-2q2=8(10-8q2)/2=4(10-8q2)=40-32q2

30q2=30

q2=1 and q1=1

Equilibrium lerner index=(P-MC)/P=10-4-4/(10-2(1+1))=2/6=1/3

Hence true