Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium
What will be an ideal response?
Firm A's profit is π = [10 - (qA + qB)] - 2 - qA. Maximizing with respect to its own output yields qA = 4.5 - qB/2. Similarly, firm B's best response is qB = 4.5 - qA/2. The equilibrium occurs when both firms produce 3 units. Price is 10 - 3 - 3 = 4.
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Indicate whether the statement is true or false
Which one of the following must a central bank must be concerned about driving most of the country’s existing banks into bankruptcy?
a. a large and unexpected exchange rate appreciation b. a large and unexpected interest rate increase c. a large and unexpected exchange rate depreciation d. a large and unexpected increase in foreign investments
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