Lectures 3 to 7

Question 1

Network Externalities

Answer 1

Network externality has been defined as a change in the benefit, or surplus, that an agent derives from a good when the number of other agents consuming the same kind of good changes. Depends on the Snob and bandwagon effect.

Question 2

Herfandahl Index

Answer 2

H is higher:
the lower is the number of firms in the market
the more unequal is the distribution of market share

Question 3

Under the Price Competition what is the firm?

Answer 3

The firm is a price taker and hence the amount it chooses to produce will not influence the price it faces

Question 4

What happens in the long run in PC?

Answer 4

Firms making positive profits (P >AC) implies entry

Firms making negative profits (P