Question

2. There are 9 fimms compete Cournot in an industry. The industry demand curve is given by Q- 55-p. a. Assume each firm has cost function C(q) = 54. Find the total industry output Q, the price, each firm's profits and the Herfindahl index. b. Assume instead each firm faces a cost function C(q) =iqi, i = 1..9 (That is, MC1 = 1, MC2 = 2,...,MC, = 9.) Find the total industry output and the industry price. (Hint: Do not try to solve for individual quantities. The best way is to add up the 9 FOCs to get one equation that contains only Q and not any individual q. c. Is the Herfindahl index higher in part a or part b? Is welfare higher in part a or part b? Do not attempt to do any math here (which is cumbersome) to find welfare explicitly. Use your answers for Q and P to infer which outcome is more efficient. What does the asymmetry in costs reveal about the Herfindahl?

Answer 1

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