Suppose the demand for Pepsi is qp = 50 - 2pp + 1pc. The firm faces a constant marginal cost of m, and denotes the price of Coke
Assuming Bertrand behavior, derive Pepsi's best-response function and explain how the firm changes price in response to changes in its own marginal cost and changes in Coke's price.
For Pepsi, profit maximization means δπ/δpp = 50 + 2m - 4pp + pc = 0. Solving for pp yields Pepsi's best-response function: pp = 12.5 + (1/2 )m + (1/4)pc. A $1 increase in marginal cost yields a $0.50 increase in price. A $1 increase in Coke's price yields a $0.25 increase in price.
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Refer to Figure 13-2. Ceteris paribus, a decrease in the price level would be represented by a movement from
A) SRAS1 to SRAS2. B) SRAS2 to SRAS1. C) point A to point B. D) point B to point A.
Refer to the game in Scenario 13.6. What will occur if ERS Co plays a maximin strategy?
A) -$100, -$1 B) $2, -$0.5 C) $1, -$1 D) -$0.5, -$0.5 E) There is a 0.25 chance of each outcome in that case.
The Federal Open Market Committee (FOMC) enters the market to purchase $10 million in securities. Suppose the Paris First National Bank decides to sell $10 million of the securities it owns to the FOMC; then
a. the Paris First National Bank now has $10 million more in excess reserves at the Fed b. the Paris First National Bank still has the $10 million government securities but they are held at the Fed c. this purchase and sale appears as a $20 million increase in the Fed's liabilities to Paris First National Bank d. the Fed has increased its asset position by $20 million, the bank's liabilities fall by $20 million e. there is no change to either the Fed or Paris First National Bank's balance sheet, there's just a trade-off of equal value
From the end of World War II until the present, the price level has
a. slowly fallen over time. b. fluctuated around a downward trend. c. remained stable throughout the period. d. fluctuated around an upward trend.