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#Post#: 47--------------------------------------------------
January 2012 Exam ~ Q 7b(ii)
DIR By: Snorlax
Date: December 14, 2012, 10:40 am
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Hello everyone. 1st post, so here goes.
I have a (rather pedantic) question regarding the model answers
to Q7b(ii) from the 2012 exam.
HTML http://www2.warwick.ac.uk/fac/soc/economics/pg/modules/ec901mic/details/msc_micro_january_2012_exam_answers_to_section_b_questions.pdf
On the 5th page it states, ''Given this, villager 1 will choose
x1 to maximize his pro fit subject to the constraint that x2
will be this optimal value. Substituting, it follows that
villager 1's profit is (18-x1)x1 /2''. I don't understand what
we substitute and where we substitute it in order to get
(18-x1)x1 /2. I know how to get the 1st of the 2 equations
(x2=...) but not the second. From that equation I know how to
find x1*=9 and x2*=4.5 so the only problem is deriving
aforementioned equation.
Thanks in advance to Julia (or whomever else decides to answer)
:)
#Post#: 48--------------------------------------------------
Re: January 2012 Exam ~ Q 7b(ii)
DIR By: Julia.Wirtz
Date: December 15, 2012, 12:12 pm
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This works exactly like the Stackelberg competition in the
problem set.
You substitute the reaction function for x2 into the profit
function for villager 1 (Pi1, see part i)).
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