HWA#3 UIBS Micro-Economics course 18/11/2011 Due 30/11 (Antwerp); 01/12 (Brussels

Question 1 Consider a market with 2 firms, producing an identitical product. Market demand is given by P = 130 – 2(Q 1 + Q 2 ) where Q 1 is quantity produced by firm 1 and Q 2 is quantity produced by firm 2. The total cost for firm 1 is TC 1 = 10Q 1, for firm 2 = 10Q 2. Therefore we have MC 1 = 10 and MC 2 = 10. Marginal revenue for firm 1 is MR 1 = Q 1 - 2Q 2 and for firm 2, MR 2 = Q 1 - 4Q 2. Each firm chooses its quantity to maximize profits a)Setting MC = MR, find the reaction functions for both firms b)Find the equilibrium quantity produced by each firms by solving the the two reaction functions c)Find the equilibrium price. d)Find the profit at that point for both firms

Question 2 Consider these two statements on the effect of globalization. “Globalization, by opening domestic markets, reduces the market power of oligopolies in those markets.” “Globalization, by increasing the opportunities for economies of scale, increases the chances for build up of market power”. Discuss why or why not... a)either of these views are correct b)they are both correct