Author Question: In a Bertrand model, if one firm has a dominant strategy, its best-response function A) does not ... (Read 85 times)

SGallaher96 · **on:** Jul 1, 2018

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 · **Reply #1 on:** Jul 1, 2018

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.