1. Consider the following Cournot game between two firms. In each cell the first number gives...

 

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1. Consider the following Cournot game between two firms. In each cell the first number gives the profit of firm 1 and the second number the profit of firm 2. Firm 2 Firm 1 ql=1 ql=2 q2-1 12, 12 50,0 q2=2 0,50 2,2 Firm 2 tells firm 1: "today, let's call it date 0, I will produce 1 unit. At every date t I will produce 1 unit if and only if you produced 1 unit up to date t-1. If at any date t you produce 2 units, then from date t+1 onwards I will also produce 2 units". Suppose that firm 1 believes that firm 2 will follow this strategy. Suppose that the rate of interest is 10%. A What is the value of the discount factor 8? B. Assuming an infinite horizon, is it better for firm 1 to always produce 1 unit or to produce 1 unit up to date 9 and then switch to 2 units from date 10 onwards? 1. Consider the following Cournot game between two firms. In each cell the first number gives the profit of firm 1 and the second number the profit of firm 2. Firm 2 Firm 1 ql=1 ql=2 q2-1 12, 12 50,0 q2=2 0,50 2,2 Firm 2 tells firm 1: "today, let's call it date 0, I will produce 1 unit. At every date t I will produce 1 unit if and only if you produced 1 unit up to date t-1. If at any date t you produce 2 units, then from date t+1 onwards I will also produce 2 units". Suppose that firm 1 believes that firm 2 will follow this strategy. Suppose that the rate of interest is 10%. A What is the value of the discount factor 8? B. Assuming an infinite horizon, is it better for firm 1 to always produce 1 unit or to produce 1 unit up to date 9 and then switch to 2 units from date 10 onwards?

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A Discount Factor The discount factor denoted by using represents the existing value of a greenback obtained inside the future relative to a dollar re... View the full answer