In a Bertrand model, if one firm has a dominant strategy, its ...

[SGallaher96]

In a Bertrand model, if one firm has a dominant strategy, its best-response function
 
  A) does not exist.
  B) is identical to its rival.
  C) is a constant.
  D) is to respond to its rival's price increase with a price decrease.

Question 2

The above figure shows the demand and supply curves in the market for milk. Currently the market is in equilibrium. If the government establishes a 4 per gallon price support, estimate the change in p, Q, and social welfare.
 
  What will be an ideal response?

[sarahccccc]

Answer to Question 1

C

Answer to Question 2

Price rises to 4 per gallon. Consumers purchase only 500 gallons of milk. The government purchases 1,000 gallons of milk to support the price at 4. Thus a total of 1,500 gallons is produced. The loss in social welfare equals 1,000 gallons of milk at 4/gallon (equals 4,000 ) less the producer surplus above the old demand curve up to a price of 4 (which is 500 ). The loss in social welfare is 3,500.

[SGallaher96]

TYSM

[ktidd]

Excellent