a. If the capacity of each Örm is 16 units, what are the equilibrium prices? b.

Question

a. If the capacity of each Örm is 16 units, what are the equilibrium prices?

b. If the capacity of each Örm is 4 units, what are the equilibrium prices?

c. Show there is no equilibrium when the capacity of each Örm is

2. Consider a homogeneous duopoly market where two firms compete in prices (Bertrand). De- Zp. There are no variable production costs a. If the capacity of each firm is 16 units, what are the equilibrium prices? b. If the capacity of each firm is 4 units, what are the equilibrium prices? c. Show there is no equilibrium when the capacity of each firm is 6.

Explanation / Answer

The benefits of price stability, as well as the costs

associated with inflation or deflation, are closely

associated with money and its functions. Chapter

2 is therefore devoted to the functions and history

of money. This chapter explains that in a world

without money, i.e. in a barter economy, the

costs associated with the exchange of goods and

s e r v i c e s, such a s in forma tion, s e a rch and

transportation costs, would be ver y high. It

illustrates that money helps goods to be exchanged

more efficiently and therefore enhances the wellbeing of all citizens. These considerations are

followed by a more detailed discussion of the role

and the three basic functions of money. Money

serves as a medium of exchange, as a store of value

and as a unit of account. The precise forms of

money used in different societies have changed

over time. Commodity money, metallic money,

paper money and electronic money are particularly

noteworthy. The main developments in the history

of money are briefly reviewed and explained.

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