Waldman/Jensen – Industrial Organization Theory and Practice, Fourth Edition
Chapter 12
Page 21
Problem 2:
With
LRAC(q) = 50 +
1
0
0
1
0
λ
q
.
λ
equal 150.
If
λ
=
∞
, then:
1
0
1
0
0
∞
q
50.
With
λ
= 0, a competitive market structure would likely emerge because LRAC
= 150. With
λ
= 1, however, learning–by–doing is important and the first–movers in the
Problem 4:
+15) = 110 – 2qM. Setting MR= MC; 110 – 4qM =20; qM=22.5; P= 110 – 2(22.5) = 65;
Profit to the monopolist = qM(P–MC) –FCM = 22.5(65-20) – 0 = 1012.5.
FCM = 23.75(62.5-15) – 400 = 728.125.
Potential Entrant: qPE=15; P=62.5; profit to the potential entrant= qPE(P–MC) –
FCPE = 15(62.5-20) – 775 = –137.5.
Chapter 12
Page 22
