Economics 2150A/B Lecture Notes - Lecture 15: Marginal Cost, Market Clearing, Monopolistic Competition

• School: Western University
• Department: Economics
• Course: Economics 2150A/B
• Professor: Kristin Denniston

Document Summary

Note: homework has been extended until monday march 10. Oligopoly with differentiated products (page 7 and 8 of part 2 ch. Product differentiation: vertical potential substitutes but perceived quality differences, horizontal imperfect substitutes. Eg. the customer views a mcdonalds hamburger differently than a. Wendy"s hamburger (they are somewhat similar but imperfect substitutes) Q1 = 64 4p1 + 2p2. Q1 = (64 + 2p2) 4p1 (taking the price of pepsi as fixed) Q2 = (50 + p1) 5p2 (taking the price of coke as fixed: find the residual demand curve. Q1 = (64 + 2p2) 4p1. We need to convert to the inverse demand firm p = f(q) to find mr. P1 = (16 + . 5p2) - . 25q. Find mr1 = (16 + . 5p2) . 5q. If p2 = 8, then p1* = 10. 5 + 0. 25(8) = 12. 50: find firm 2"s reaction function.