Suppose a single firm has constant marginal cost and faced the demand curve 
a. Illustrate in this graph how a monopolist who cannot price discriminate would price this good. What is the monopoly price and quantity?
b. Suppose two firms with the same marginal cost as the monopolist operated in this market instead. Suppose quantity is the strategic variable and the two firms simultaneously choose quantity. On a graph with firm 1's output on the horizontal and firm 2's output on the vertical, illustrate firm 2's best response function with numerical labels for each intercept.
c. Add firm 1's best response function and determine the Nash equilibrium quantities.
d. What's the equilibrium price resulting from the quantities you determined in (c)?
e. What would be the equilibrium price if the strategic variable for the firms were price instead?
What will be an ideal response?
b.
c.
d. The equilibrium price is 60. (This is just read off the demand curve for output of 80.)
e. This would be Bertrand competition under which price is equal to MC -- i.e. p=20 and total output is 120.
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The choice between futures and options
A) depends on whether the underlying instrument is a debt instrument or an equity. B) reflects a trade-off between the higher cost of using options and the extra insurance benefits that options provide. C) reflects a trade-off between the higher cost of using futures and the extra insurance benefits that futures provide. D) reflects a trade-off between the greater risk from using options and the extra insurance benefits that options provide.
All of the following except ____ are shortcomings of cost-benefit analysis
a. difficulty in measuring third-party costs b. difficulty in measuring third-party benefits c. failure to consider the time value of benefits and costs d. difficulty of accounting for program interactions e. a and b