Homework 2

  1. There are four firms in a market and each has 25 percent of the market. Find the HHI.
  1. There are thirty-four firms in a market. Four firms have 10 percent each and thirty firms have 2 percent each.
  1. Find the HHI
  2. For the HHI in part a, assume equivalence and find the number of firms that can exist in the market and have the same HHI you found in part a? In other words, find the numbers equivalent of firms with HHI from part A.
  3. Assuming equivalence, calculate each firms market share.
  4. Assuming equivalence, calculate the HHI.
  1. You own goods X and Y. You are considering increasing price of good Y.

Qx = 98 -10Px + 4Py

Px = 5

Py = 3

  1. What is the relationship between good X and good Y? Briefly explain how you can tell.
  2. Should you increase the price of good Y? Briefly explain.
  1. (Counts as 2 questions) You own goods A and B. You are considering increasing price of good A by 10%. Here is the information you have

Pa = 20

Qa = 1000

For each $1 increase in Pa, Qa will decrease by 100.

Pb = 12

Qb = 750

For each $1 increase in Pa, Qb will increase by 100.

(The point of this exercise is to have you do everything the long way then use the delta r formula so you can see the difference)

  1. What is the change of revenue for A after the price changes?
  2. What is the change or revenue for B after the price changes?
  3. What is change in total revenue for both goods after price changes?
  4. What is the own price elasticity for good A?
  5. What is the cross price elasticity of A and B?
  6. Calculate the change of revenue using the formula provided in class.
  7. Explain why the two methods have different answers.
  8. Which method do you prefer- Hand calculating all the changes and then calculating change of TR or delta r formula to calculate the change of revenue? Briefly explain.