microeconomic assignment

Principles of Microeconomics Problem Set 7

Due 10/28

1. For each of the following forms of oligopoly, do the firms compete in price or quantity?

Do they produce the competitive output, the monopoly output, or in between? Explain

the source of the firms’ market power, if it exists. (15 points)

a. Cournot Competition

b. Homogenous Product Bertrand

c. Hotelling

d. Cartel

e. Kinked Demand

2. In a cartel, a group of firms comes together to agree on a price. Do they name a price

above, below, or equal to the monopoly price? Why? Given that, why does it make

sense for cartels to be illegal while other forms of oligopoly competition are allowed? (5

points).