Suppose two firms produce a homogeneous good for a given market. Firm 1 is a domestic...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose two firms produce a homogeneous good for a given market. Firm 1 is a domestic firm and determines their quantity supply q₁ of the good which is produced at cost c₁(91) (91)2. Firm 2 produces internationally and determines their quantity supply 12 of the good which is produced at cost c2(92) = 392. The price of the good depends on supplied quantity in the following way: p(q) = 60 - q where q = 9₁ +92 is total quantity supply. (a) First, assume that both firms determine their quantities simulta- neously. Write down the game in strategic form and determine the Nash equilibrium of the game. What is the price of the good in the Nash equilibrium of this game? [6] (b) Now, assume that firm 2 determines its quantity first, and firm 1 chooses its quantity after observing the choice by firm 2. Deter- mine the subgame perfect Nash equilibrium. What is the price of the good in the subgame perfect Nash equilibrium of this game? [6] (c) Suppose both firms collude and determine the quantities that maximise the industry profits defined by the sum of both firms' profits. Determine these quantities and the resulting price in this collusion scenario. Explain the relation to (a) and (b). [6] Suppose two firms produce a homogeneous good for a given market. Firm 1 is a domestic firm and determines their quantity supply q₁ of the good which is produced at cost c₁(91) (91)2. Firm 2 produces internationally and determines their quantity supply 12 of the good which is produced at cost c2(92) = 392. The price of the good depends on supplied quantity in the following way: p(q) = 60 - q where q = 9₁ +92 is total quantity supply. (a) First, assume that both firms determine their quantities simulta- neously. Write down the game in strategic form and determine the Nash equilibrium of the game. What is the price of the good in the Nash equilibrium of this game? [6] (b) Now, assume that firm 2 determines its quantity first, and firm 1 chooses its quantity after observing the choice by firm 2. Deter- mine the subgame perfect Nash equilibrium. What is the price of the good in the subgame perfect Nash equilibrium of this game? [6] (c) Suppose both firms collude and determine the quantities that maximise the industry profits defined by the sum of both firms' profits. Determine these quantities and the resulting price in this collusion scenario. Explain the relation to (a) and (b). [6]
Expert Answer:
Answer rating: 100% (QA)
The problem youve presented is a classic example of a Cournot duopoly where two firms compete on the quantity of output to determine the market price They are also examples of game theory in economics ... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these economics questions
-
From a management perspective, formulate and explain your company's offensive or defensive strategy to improve its market position in the next 3 years. Explain whether your company will be a first...
-
1. How strong are the competitive forces confronting J. Crew in the market for specialty retail? Do a [Michael Porter] five-forces analysis to support your answer. (see chapter 3 in the textfor...
-
Wallace and Brace CPA assign a partner to screen and recommend (or decline) potential clients prior to acceptance. Discuss at least 4 specific issues which should have been considered prior to...
-
The Apache NetBeans IDE is an open-source integrated development environment, and it supports development of all Java application types, which include . a. Java desktop applications b. Mobile and Web...
-
Two (and only two) full spectral orders can be seen on either side of the central maximum when white light is sent through a diffraction grating. What is the maximum number of lines per cm for the...
-
Two identical 15.0-kg balls, each 25.0 cm in diameter, are suspended by two 35.lkm wires as shown in Fig. 5.67. The entire apparatus is supported by a single 18.1km wire, and the surfaces of the...
-
The comparative balance sheet of Fitzwater Company at March 31, 2009, reported the following: Fitzwater's transactions during the year ended March 31, 2009, included the following: Requirements 1....
-
What moral, ethical, and professional responsibilities did Guy Enright face when he was asked to turn over confidential documents to the individuals who were representing themselves as intelligence...
-
A three-year bond price is 102.60, the coupon rate is 6% and the bond pays interest annually,theyield-to-maturity is closest to: a. 5.88% b. 5.04% c. 6.26%
-
The Fashion Rack has a monthly accounting period. All transactions are recorded in a general journal. Postings are made from the general journal to the accounts receivable ledger, accounts payable...
-
You work for a furniture store. You normally sell a living room set for $2,500 and finance the full purchase price for 30 monthly payments at 24% APR. You are planning to run a zero- interest...
-
2. Watch the following video clip: https://youtu.be/VjAe3Q5J7zA The video clip provides a good example of Communication Privacy Management. What was the private information in the video? How did the...
-
Describe a place that you feel you are part of and that is a part of you (Zion national park US). How is this place special? what are some experiences you have had in this place? How does particular...
-
Do social media, and twitter, Facebook, Instagram etc. contribute to a more democratic society by bypassing big media and allowing users to a more direct form of communication from sender to the...
-
What are your thoughts (pro and con) about single-sex schools? What are your thoughts about the changes in athletics in educational settings brought about by Title IX? If you believe further changes...
-
Design a solution which will resolve a specific ethical conflict between a manager and an employee at Walmart. This needs to be a real situation not an imagined one. This must focus on an ethical...
-
The CDG/Carlos, Dan, and Gail/Partnership has decided to liquidate as of December 1, 20X6. A balance sheet on the date follows: Assets Cash Accounts Receivable (net) Inventories Property, Plant and...
-
Which of the ocean zones shown would be home to each of the following organisms: lobster, coral, mussel, porpoise, and dragonfish? For those organisms you identify as living in the pelagic...
-
Adaptive Expectations and Oil Price Instability: We mentioned in the text that trading across time is similar to trading across space in that individuals find opportunities to buy low and sell high....
-
Government Competition, Leviathan and Benevolence: Suppose governments can spend taxpayer resources on both public goods that have social benefits and political rents that are private benefits for...
-
The following is intended to explore what kinds of income-demand relationships are logically possible. A: For each of the following, indicate whether the relationship is possible or not and explain:...
-
The most common types of fuel heaters are air/ fuel heaters and __________________ / fuel heaters.
-
To avoid refueling, sometimes fuel tank maintenance can be performed by __________________ fuel into a different tank.
-
To fuel with pressure refueling, a hose nozzle is attached at the fueling station and ________________ to the tanks required to be filled are opened.
Study smarter with the SolutionInn App