Consider a model with n firms of which m are innovators and n - m are...

 

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Consider a model with n firms of which m are innovators and n - m are non-innovators. Marginal costs and fixed costs are MC = c - x and F = 9000 for innovators and MC = c and F = 1800 for non-innovators. Market demand is given by P = a - Q/S, where S = market size. The firms play a 3 stage game involving entry, innovation and Cournot competition. a) Solve for Cournot equilibrium outputs and profits for both innovators (denoted I) and non-innovators (denoted N). Substitute a - c = 300 and x = 50 into your solutions. b) Let S = 1 and n = 6. Determine the equilibrium number of innovators m*. Show that there is no incentive for a firm to enter or exit. c) Let S = 2 and n = 6. Determine the equilibrium number of innovators m*. Show that there is an incentive for one or more firms to exit. Determine the new equilibrium n and m. Consider a model with n firms of which m are innovators and n - m are non-innovators. Marginal costs and fixed costs are MC = c - x and F = 9000 for innovators and MC = c and F = 1800 for non-innovators. Market demand is given by P = a - Q/S, where S = market size. The firms play a 3 stage game involving entry, innovation and Cournot competition. a) Solve for Cournot equilibrium outputs and profits for both innovators (denoted I) and non-innovators (denoted N). Substitute a - c = 300 and x = 50 into your solutions. b) Let S = 1 and n = 6. Determine the equilibrium number of innovators m*. Show that there is no incentive for a firm to enter or exit. c) Let S = 2 and n = 6. Determine the equilibrium number of innovators m*. Show that there is an incentive for one or more firms to exit. Determine the new equilibrium n and m.

Answer rating: 100% (QA)

ANSWERS a The Cournot equilibrium outputs and profits for innovators are given by QI a 2c3 2F3S and ... View the full answer