Consider a market populated by two firms, firm 1 and firm 2. They produce homogeneous products...

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Consider a market populated by two firms, firm 1 and firm 2. They produce homogeneous products whose market demand is given by Q = 30-p. The two firms are symmetric and their total cost function is TC;(qi) = 20qi with i = 1,2. Firms compete in prices and choose prices simultaneously. • Find the Nash equilibrium of the one-shot game. Compute equilibrium output and profit of each firm. Assume that firm 1 innovates its production process and its total cost function becomes TC(q) = 8q1. Find the Nash equilibrium of the one-shot game. Compute equilibrium output and profit of each firm. • What is the value of innovation for firm 1, i.e. how much do the profits of firm 1 increase if it innovates? • Consider now a monopolist that produces the same product and faces the same market demand. What is the value of an innovation that decreases the marginal cost from 20 to 8 for the monopolist? • In which market structure the value of innovation is higher? Consider a market populated by two firms, firm 1 and firm 2. They produce homogeneous products whose market demand is given by Q = 30-p. The two firms are symmetric and their total cost function is TC;(qi) = 20qi with i = 1,2. Firms compete in prices and choose prices simultaneously. • Find the Nash equilibrium of the one-shot game. Compute equilibrium output and profit of each firm. Assume that firm 1 innovates its production process and its total cost function becomes TC(q) = 8q1. Find the Nash equilibrium of the one-shot game. Compute equilibrium output and profit of each firm. • What is the value of innovation for firm 1, i.e. how much do the profits of firm 1 increase if it innovates? • Consider now a monopolist that produces the same product and faces the same market demand. What is the value of an innovation that decreases the marginal cost from 20 to 8 for the monopolist? • In which market structure the value of innovation is higher?

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To find the Nash equilibrium in the oneshot game well determine the best response of each firm given the other firms strategy 1 Nash equilibrium in the oneshot game The market demand is given by Q 30 ... View the full answer