Answer Happy

1. (4 pts) Explain why, in the presence of incomplete information, bargaining between a buyer and a seller may break down even when there are gains from trade. 2. (4 pts) Firms in an industry produce a homogeneous good. You have data on prices P, total quantity Q, a demand shifter y and a cost shifter w. You know that both the demand curve and marginal costs are linear. Can you estimate both the marginal cost function and the conduct parameter? Explain the reasoning behind your answer. 3. (4 pts) Firm 1 is the only firm operating in an industry. Firm 2 is a potential entrant that is deciding whether or not to enter the market. Can firm 1 use the threat of future price reductions to deter firm 2 from entering?