Home Assignment #4 Comparison of Perfect Competition, Monopoly, Bertrand, Cournot, and

Home Assignment #4 Name:

Comparison of Perfect Competition, Monopoly, Bertrand, Cournot, and Stackelberg Duopoly

This worksheet can be used to calculate equilibrium outcomes under different market structures for linear demand and constant marginal cost. Fixed costs are zero.

Firm-level quantity, total quantity, price, firm profits, industry profits, consumer surplus, welfare and DWL are reported. Profit refers to the total industry profit, Profit=Profit1+Profit2, and W=CS+Profit.

Base Parameters a b c1 c2 Table 0: Perfect Competition

Case 1 40.00 1.00 10.00 10.00 P Q Profit CS W DWL

Case 2 40.00 1.00 5.00 10.00

Case 3 60.00 1.00 10.00 10.00

My Parameters a b c1 c2

Case 1 40.15 1.18 10.94 10.07

Case 2 40.63 1.45 5.11 10.08 Table 1: Bertrand Table 2: Monopoly or Collusion

Case 3 60.58 1.98 10.79 10.16 P Q Q1 Q2 Profit1 Profit2 Profit CS W DWL P Q Q1 Q2 Profit1 Profit2 Profit CS W DWL

Table 3: Cournot Table 4: Stackelberg

P Q Q1 Q2 Profit1 Profit2 Profit CS W DWL P Q Q1 Q2 Profit1 Profit2 Profit CS W DWL

Notations:

a Inverse demand intercept Instructions

b Inverse demand slope

c1 Firm 1's marginal cost In this assignment, you are asked to calculate the equilibrium outcomes under Perfect Competition, Monopoly (Collusive Outcome), Bertrand, Cournot, and Stackelberg Duopoly.

c2 Firm 2's marginal cost

P Price 1. Insert the formulas in the tables (Table 0, 1,2,3, and 4) to calculate the equilibrium outcomes. Use the parameters listed at the top of this worksheet, but add a random component +RAND() to each parameter (as it is done in My Parameters). Each student's parameters should be different.

Q Total Quantity

Q1 Quantity produced by firm 1

Q2 Quantity produced by firm 2 2. In a separate worksheet titled Graph, plot the best-response functions for firms 1 and 2 (under Cournot competition, Case 1: My Parameters) and isoprofit curves for firm 1. Plot 5 different isoprofit curves for firm 1, which correspond to different levels of profit, making sure to plot isoprofit curves that go through the Cournot and Stackelberg equilibria and to label the equilibria.

Profit1 Profit of firm 1

Profit2 Profit of firm 2

Profit Total industry profit

CS Consumer surplus

W Welfare

DWL Dead-weight loss