Economics Homework Help

1.Two firms produce jams which are close substitutes. Firm 1 produces blackberry jam and
has a demand for its product which is

(Firm1) Q=160 4−p⋅ 4+p⋅
112

while firm 2 produces raspberry jam and faces the demand curve
(Firm2) Q2 =64 +4 p⋅1 −4 p⋅2

Assume the marginal costs of both firms are zero.
(a) What is each firm’s price reaction curve?

(b) What are the resulting Bertrand equilibrium quantities and prices?

2.Fonefast is a dominant firm in local telephone service, which also has a fringe of

competitive firms. Market demand for local service is p = 200 Q, −with p in dollars charged per

household and Q in thousands of households supplied per month. The fringe marginal cost curve is
FFFF

MC = 20 Q+ (with Q and MC also in thousands of households and dollars per households,

respectively), and Fonefast’s marginal cost of producing chips is constant at $10 per household.
(a) Determine the residual demand Fonefast faces after accounting for the quantity supplied by
the competitive fringe for any level of price.

(b) How many households will Fonefast supply per month?

ARE 100B 8 Exam 2
(5 pts) (c) What is the resulting price for telephone service?

(d) How many households are supplied by the competitive fringe?

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