The daily demand of two firms Firm 1 and Firm 2 producing two products is given by : D1 = 5 - 22P1 + 11P2 D2 = 50 - 22P1 + 11P2 These are the only firms producing the products. MC of Firm 1 is $0.5 per product and MC of Firm 2 is $2 per product. Q1. Calculate the equilibrium quantity and price of both the firms. You may assume that firms want to maximise the profits. Q2.Calculate producer surplus and deadweight loss.

2. Jack is the owner of the only local bar in a small town. He sells whiskey in one-ounce glasses. For simplicity, let's assume it doesn't cost Jack anything to run his business. There are two customers, Adam and Burt who are twin brothers. Adam's demand function is ya = 16 – 2p, and Burt's demand function is yg = 8- p (price is measured in dollars and quantity is measured %3D by ounces). Jack knows their demand functions, but the problem is that he cannot tell them apart since they look exactly the same to him. To increase his profits, Jack offers the following two options that his customers can choose from: (1) You can pay $T1 up front and drink as much as you want; or (2) Pay $T2 up front and the price per ounce of whiskey will be $p. 2.a If p = 4, what is the maximal T2 that Jack can charge so that Burt is willing to come to the bar? 2.b What is the maximal T, that Jack can charge so that Adam will choose the first pricing option?

The market supply curve for a certain product is given by the following formula: Ps(Qg)=10+5 Qg. The demand curve is given by PDQD)=190-10QD. a) What are the equilibrium price and quantity in the competitive equilibrium? b) Draw a diagram that shows the market supply and demand curve as well as the equilibrium price and quantity. Assume that the willingness-to-pay for the product drastically increases for most of the customers: The new demand curve is perfectly inelastic (i.e., the price elasticity of demand is zero). Assume that the new equilibrium price is still at 70. c) Draw the new demand curve in your diagram from b). Briefly explain, why you drew it that way? d) What is the new equilibrium demand? e) Are the producers better off after the increase in the willingness-to-pay for the product?

Exercise 2.9. Consider an industry where there are two firms, a large firm, Firm 1, and a small firm, Firm 1. The two firms produce identical products. Let x be the output of Firm 1 and y the output of Firm 2. Industry output is Q=x+y. The price Pat which each unit of output can be sold is determined by the inverse demand function P=130-100. For example, if Firm 1 produces 4 units and Firm 2 produces 2 units, then industry output is 6 and each unit is sold for P = 130-60 = $70. For each firm the cost of producing each q units of output is C(q)=10q+62.5. Each firm is only interested in its own profits. The profit of Firm 1 depends on both x and y and is given by ПI,(x, y) = x[130− (x+y)]-(10x+62.5) and similarly the profit function of revenue cost Firm 2 is given by П2(x, y) = y[130−(x+y)] −(10y+62.5). The two firms revenue cost play the following sequential game. First Firm 1 chooses its own output x and commits to it; then Firm 2, after having observed Firm 1's output, chooses its own…