Q2 Consider the following demand function, p= 1-Q/2, Q = 91 +92, where qi denotes firm...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Q2 Consider the following demand function, p= 1-Q/2, Q = 91 +92, where qi denotes firm i's output, i=1,2. Assume that the marginal cost of each firm is equal to c> 0. Firms choose quantities simultaneously and non cooperatively (Cournot competition). The game described above is infinitely repeated. Firms use grim trigger strategies. Firms discount future profits at a rate r > 0 (the discount factor is 8 = 1/(1+r)). a) Derive the critical discount factor above which full cartelization (joint profit maximization) is sustainable as a Subgame Perfect Nash Equilibrium (SPNE) of the infinitely repeated game. Consider now the following prisoner's dilemma game: с N C 3,3 0,4 N 4,0 1,1 The above game is repeated a random number of times, potentially infinitely many times. After each stage is played, the game continues with probability q. This probability is independent from one round to the next. The probability that the game is still being played T rounds from now is q. 1 b) Assume that players do not discount future payoffs (i.e. r = 0). Compute the threshold of q above which (C,C) is a SPNE of the repeated game that ends after a random number of repetitions. Comment. c) Assume now that players discount future payoffs at a rate r > 0. Compute the critical discount factor above which (C, C) is a SPNE of the re- peated game that ends after a random number of repetitions. Comment. d) In repeated games in general, if players discount future payoffs at a different rate, is it possible for cooperation to be sustainable? Explain. Q2 Consider the following demand function, p= 1-Q/2, Q = 91 +92, where qi denotes firm i's output, i=1,2. Assume that the marginal cost of each firm is equal to c> 0. Firms choose quantities simultaneously and non cooperatively (Cournot competition). The game described above is infinitely repeated. Firms use grim trigger strategies. Firms discount future profits at a rate r > 0 (the discount factor is 8 = 1/(1+r)). a) Derive the critical discount factor above which full cartelization (joint profit maximization) is sustainable as a Subgame Perfect Nash Equilibrium (SPNE) of the infinitely repeated game. Consider now the following prisoner's dilemma game: с N C 3,3 0,4 N 4,0 1,1 The above game is repeated a random number of times, potentially infinitely many times. After each stage is played, the game continues with probability q. This probability is independent from one round to the next. The probability that the game is still being played T rounds from now is q. 1 b) Assume that players do not discount future payoffs (i.e. r = 0). Compute the threshold of q above which (C,C) is a SPNE of the repeated game that ends after a random number of repetitions. Comment. c) Assume now that players discount future payoffs at a rate r > 0. Compute the critical discount factor above which (C, C) is a SPNE of the re- peated game that ends after a random number of repetitions. Comment. d) In repeated games in general, if players discount future payoffs at a different rate, is it possible for cooperation to be sustainable? Explain.
Expert Answer:
Answer rating: 100% (QA)
Question There is three firms in the market and they choose price simultenously and noncooperatively here noncooperatively implies that they try to op... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
Students also viewed these finance questions
-
View Policies Show Attempt History Current Attempt in Progress On April 1, 2020, Sheffield Company assigns $549,200 of its accounts receivable to the Third National Bank as collateral for a $305,600...
-
On April 1, 2017, Mendoza Company borrowed 460,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2017 and will...
-
Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record...
-
Determine the global extreme values of the function on the given domain. f(x, y) = 5x- 3y, y x-2, yz-x-2, y 3
-
State the major advantages and disadvantages of oral communication and written communication.
-
Calculations from a data set of it = 36 pairs of (x, y) values have provided the following results. Obtain the correlation coefficient. (x-2 = 530.7 (y-2 = 235.4 x_x)-- .
-
Using MATLAB, solve the simple pendulum equations, Eqs. (E.1)-(E.3), given in Example 13.6, for the following data: \[\omega_{0}=0.1, \quad \theta(0)=0.01, \quad \dot{\theta}(0)=10\] Data From...
-
The ledger of Chopin Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. An analysis of the accounts shows the...
-
Ryanair Case The emergence of low-cost carriers (LCCs) in the early-to-mid 1990s opened air travel to customerswho otherwise might not have travelled by air or at all.By 2018,LCCs held 43% of the...
-
A. Richard McCarthy (born 2/14/64; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1966; Social security number 101-21-3434) have a 19-year-old son (born 10/2/99 Social Security...
-
Fin al Ex am: (12 points total) This assignment asks you to cre ate a "final" reflection on the good life. As such, you should consider it one of the most important activities of the semester. On the...
-
With the help of a neat sketch describe a Loeffler boiler. What is usually the working pressure of such a boiler?
-
Two immiscible fluids are flowing between parallel plates separated by a distance, \(d\). Each fluid occupies \(50 \%\) by volume of the pipe. For the pressure drop given in Figure P5.7, determine...
-
Consider each of the following issues and discuss whether you support Theory X, Theory Y, neither theory, or some combination of them. Issue Theory X Theory Y Whether a person is healthy or sick...
-
How is the property of commutivity of scalar products satisfied for the kineticenergy scalar product?
-
Compile a combined list of the 10 most common products the average college student might use.
-
Since products are very similar across the whole online-gifting industry? How could Flowaura differentiate itself as unique or a better choice for customers? How can the brand reduce the number of...
-
Accounting policies and practices that are most important to the portrayal of the companys financial condition and results, and require managements most difficult, subjective, or complex judgments...
-
Under IFRS, when depreciating an asset, do managers have to estimate the useful life and salvage value for all components of the asset? Explain.
-
Determine whether each of the convertible bonds below has a beneficial conversion option. Each bond is $ 1,000 face value and issued at par. a. Eight- year, 5% convertible bond, converts to 50 shares...
-
Use the information related to Bigelow Contractors from P8- 6 and P8- 7 to answer the following questions. Assume that Bigelows total assets were $ 5,000,000 and its liabilities were $ 2,000,000 at...
-
Suppose you just returned home from a vacation in Mazatlan, Mexico, where you exchanged U.S. dollars for Mexican pesos. How did your trip to Mexico affect the supply and demand for dollars and the...
-
How does a currency speculator profit from exchange-rate changes? Give an example of a profitable speculation.
-
What is the dollar value of the invoices in exercise 13 if the dollar: a. depreciates 10 percent against the Australian dollar b. appreciates 10 percent against the British pound c. depreciates 10...
Study smarter with the SolutionInn App