ECON 3440 Competition Policy and Regulation
Competition Policy and Regulation
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ECON 3440
Competition Policy and Regulation
Tutorial Problem Set 1
Problem 1 [Monopoly]
A monopolist produces at constant marginal costs ofMC = 5. The inverse market demand
is given by
P (q) = 53− q
(a) Derive the marginal revenue curve corresponding to this market demand.
(b) Calculate the profit-maximising quantity of output for the monopoly. What price will
it charge?
(c) Find the monopolist’s profit and consumer surplus.
(d) What level of price and output would prevail under perfect competition?
(e) Find the consumer surplus under perfect competition.
(f) What is the deadweight loss of a monopoly in this industry?
Problem 2 [Nash Equilibrium]
Watch the Golden Balls video from slide 21 of the lecture notes on Section 2 - Basic
Concepts.
(a) Draw the game in normal form. Give all the information needed for the description of
this static game.
(b) [10 marks] Find all Nash equilibria of the game. Compare your findings with the actual
outcome. [Hint: if two actions yield exactly the same payoff, they are both part of the best
response of a player.]
TUTORIALS
Problem 3 [Subgame Perfect Equilibrium]
Assume Kermit (row player) and Miss Piggy (column player) play the following normal-
form game:
L C R
T (4, 5) (0, X) (7, 2)
M (Y, 1) (2, 2) (9, 1)
B (3, 10) (1, 6) (8, 8)
(a) Give the Nash equilibrium of the game as a function of X and Y .
(b) Now assume that Y = 5 and X = 4 and that Kermit and Miss Piggy play the game
twice.