Topics 8-10

Question 1

What do firms compete in for the Cournot model?

Answer 1

quantities

Question 2

What do firms compete in for the Bertrand model?

Answer 2

prices

Question 3

What determines the market price for Cournot?

Answer 3

The total output of all the firms.

Question 4

How do we do the math for Cournot?

Answer 4

1. TR
2. MR=MC
3. q (system of two unknowns)
4. P
5. Profit
6. Graph of q

Question 5

How do we graph Cournot reaction functions?

Answer 5

1. Plot intersection of the two Q*s
2. Use 0 for q1 in q1’s reaction function.
3. Use 0 for q2 in q1’s reaction function.
4. Repeat with q2’s reaction function.

Question 6

What is the Cournot revenue destruction effect?

Answer 6

-Individual firms ^Q to ^TR
- P=x-q1-q2
- ^ Q = lower P (externality)
- Effect is shared, so the firm still makes more
- ^n = lower market share = lower revenue destruction repercussions to the firm= more likely to happen

Question 7

How is PCM related to the Herfindahl Index?

Answer 7

PCM = (P-MC)/P=HI/n

Question 8

What is Stackelberg essentially?

Answer 8

Sequential game.

Question 9

How do we do the Stackelberg Cournot math?

Answer 9

1. TR2
2. MR2 then Q2*
3. TR1 w/Q2*
4. Q1 Stackelberg
5. Q2 adjusted using old Q2 but with new Q1.

Question 10

How do we do the math for an unknown number of firms in Cournot?

Answer 10

1. q(n-1) as term
2. MR
3. q=q=q
   - q*=((# from demand)-MC)/(n+1)

Question 11

How do we do the Bertrand Stackelberg math?

Answer 11

1. Profit 2
2. FOC 2
3. P2
4. P2 into Profit 1
5. FOC 1
6. P1
7. Q1&2
8. Profit1&2

Question 12

How do we do Bertrand math?

Answer 12

1. Profit 1
2. Differentiate P1
3. Set equal to 0
4. Repeat for P2
5. System of equations

Question 13

How do we do Limit Pricing?

Answer 13

1. Given PL
2. Use old P equation but equal to PL
3. q=q=q