I need help with the problems listed. I already have the answers which are on the second page. But I need the steps listed on how to solve them12. Suppose two hot dog stands, Al’s & Bob’s, position themselves at different ends of a 100 yard stretch of beach. Assume there are 100 beach goers evenly distributed along the stretch of beach and travel costs are $.1 per yard. If Al charges $1 for his hot dogs and Bob charges $2 for his hot dogs, what is the cost of purchasing a hot dog from each stand for a hungry beachgoer situated at a position D yards from Al’s end of the beach? How many consumers will go to Al’s and how many will go to Bob’s? 13. In a two firm market, let the total cost of producing a product be 2Q i , the inverse market demand be given by the function P = 20 - Q and the market quantity be equal to Q = Q 1 +Q 2 . Assume firms compete in quantities, what is the quantity for firm 1 that maximizes profits when firm 2 produces 4 units; 6 units;

8 units? Draw the reaction curve of both firms and find the Nash Equilibrium.

14. Suppose that two firms compete simultaneously in quantities. The inverse demand function is given

by P = 12 - Q where Q = Q1 + Q2 is the sum of the quantities produced by firms 1 and 2 respectively.

Assume also that these firms have NO COSTS. If firm 2 produces 2, 4 and 6 units, what is the optimal

quantity that must be produced by firm 1

a) 4, 3 and 2 units respectively

b) 6, 5 and 4 units respectively

c) 5, 4 and 1 units respectively

d) 5, 4 and 2 units respectively

e) 5, 4 and 3 units respectively

15. Given the solution to problem 19, what is the Nash Equilibrium of this game?

a) Both firms producing 1 unit

b) Both firms producing 2 units

c) Both firms producing 3 units

d) Both firms producing 4 units

e) Both firms producing 5 units

16. What is the profit of each firm in equilibrium? REMEMBER THERE ARE NO COSTS

a) Both firms have profits of $16

b) Both firms have profits of $18

c) Both firms have profits of $20

d) Both firms have profits of $22

e) Both firms have profits of $28

17. Suppose that both firms decide to collude (form one firm) and maximize profits as one entity. What is

going to be the overall production level they choose and the profit they make, respectively (compute the

quantity and profit of the big firm and not of the individual firms)

a) 3 unit, $12

b) 4 units, $24

c) 6 units, $36

d) 7 units, $38

e) 8 units, $24

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