1. Let demand for car batteries be such that Q = 100 - 1/3 P. Assume constant marginal costs of 30. Compute the equilibrium price and quantity, consumer surplus, producer if relevant deadweight loss for:
(a) A perfectly competitive firm
(b) A monopoly
(c) Two firms engaged in Cournot Competition.
(d) Two firms engaged in Bertrand Competition
Compute consumer and producer surplus for the first of these three cases only.
You should explain your work and define all relevant concepts.
2. Show graphically a case where increasing the number of firms can speed up the arrival of innovation. Show a case where it can slow the arrival of innovation down. What is the key difference in terms of firm level incentives from adding additional firms in each scenario?
3. Explain the economic fundamentals necessary for a monopoly to charge a higher price than if the industry was perfectly competitive, but still achieve more total surplus.
4. Explain graphically, for the case of a continuous environmental harm, the validity of cost/benefit analysis. That is assume there is a continuous variable called environmental quality. There are two functions, a concave total benefits function and a convex total costs function. Graph these functions. Show graphically the quantity that maximizes net benefits. Find the relationship between marginal costs and benefits at this level. In general what assumptions are implicit in such an analysis?