Question: Entry Deterrence 2: Consider the Cournot duopoly game with demand p = 100 (q1 + q2) and variable costs ci(qi) = 0 for i {1,

Entry Deterrence 2: Consider the Cournot duopoly game with demand p = 100 (q1 + q2) and variable costs ci(qi) = 0 for i {1, 2}. The twist is that there is now a fixed cost of production k > 0 that is the same for both firms.

a. Assume first that both firms choose their quantities simultaneously. Model this as a normal-form game.

b. Write down the firm's best-response function for k = 1000 and solve for a pure-strategy Nash equilibrium. Is it unique?

c. Now assume that firm 1 is a "Stackelberg leader" in the sense that it moves first and chooses q1. Then after observing q1 firm 2 chooses q2. Also assume that if firm 2 cannot make strictly positive profits then it will not produce at all. Model this as an extensive-form game tree as best you can and find a subgame-perfect equilibrium of this game for k = 25. Is it unique?

d. How does your answer in (c) change for k = 225?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Karen Johnson, CFO for Raucous Roasters (RR), a specialty coffee manufacturer, is rethinking her company's working capital policy in light of a recent scare she faced when RR's corporate banker,...

Entry Deterrence 2: Consider the Cournot duopoly game with demand p = 100 ? (q1 + q2) and variable costs ci(qi) = 0 for i ? {1, 2}. The twist is that there is now a fixed cost of production k > 0...

Game Theory Entry Deterrence 2: Consider the Cournot duopoly game with demand p = 100 - (q) + q2) and variable costs c;(q;) = 0 for i e (1, 2). The twist is that there is now a fixed cost of...

Game Theory Entry Deterrence 2: Consider the Cournot duopoly game with demand p = 100 - (q, + q2) and variable costs c; (q;) = 0 for i E {1, 2). The twist is that there is now a fixed cost of...

8.10 3.11 Playing It Safe: Consider the following dynamic game: Player 1 can choose to play it safe {denote this choice by S), in which case both he and player 2 get a payoff of 3 each, or he can...

Consider the Cournot duopoly game with demand p = 100 - (q1 + q2) and variable costs ci (qi) = 0 for i = 1 and 2. There is a fixed cost of production k = 225 (i.e. which is incurred whenever the firm...

Consider the Cournot duopoly with linear demand P (q) = 1 - q with q = q 1 +q 2 and constant marginal cost. Firm one has marginal cost of zero. This is commonly known. The marginal cost of firm 2 is...

PROBLEM 1: Consider the following situation. Nature determines whether the payoffs are as in Game 1, with probability p, or as in Game 2, with probability 1- p Player 2 learns whether Nature has...

ourvle.mona.uwi.edu 18. Imperfect information: informati... )) |5 Exercise 611 Question 15 e Another... faculty.ses.wsu.edu/Espinola/Homewo. qed.econ.queensu.ca/pub/students/k. (1,189 unrea 4....

2. Let us go back to the Cournot duopoly model where firms 1 and 2 select their production levels q, and 92, respectively. So far, we have assumed that both firms have the same production cost. Let...

E x pl ainan s w ers f or t h ese q u es t i o n s : Answer all: Problem set 1: Preferences and Utility Exercise 1: Suppose the utility function for two goods, X and Y, has the Cobb-Douglas form...

A wristwatch display can show one of four items: the time, the alarm, the stopwatch, or the date, controlled by two signals s1 and so (00 displays the time, 01 the alarm, 10 the stopwatch, and 11 the...

:The correct express of results in the following calculation is.1 S *Y = 25.3(0.4)/14.6(0.5) )1 ( %3D 1.73 O (0.08) 1.73 O (20.07) 1.73 O (20.70) 1.73 O

All of the following are requirements of a partnership except Group of answer choices formation by two or more persons. express agreement. formation to carry on a business. operation for profit.

Chemistry Determine the limiting reactant (LR) and the mass (in g) of nitrogen that can be formed from 20.0 g N2O4 and 25.0 g N2H4. Some possibly useful molar masses are as follows: N2O4 = 92.02...

Zhou Ltd. reported the following pretax financial income (loss) for the years 20222024. 2022 ........ HK$120,000 2023 ............ (150,000) 2024 .............. 180,000 Pretax financial income (loss)...

A dairy farmer needs to heat a 0.1-kg/s flow of milk from room temperature, 20C, to 60C in order to pasteurize it and then send the flow through a cooler, bringing it to 10C for storage. He wants to...

The Harvard Heart Letter reported on a study that examined the diets of 1226 older women over 15 years. They discovered that the more vegetables the women consumed, the lower their risk of dying of...

Mary Lou was once in a very abusive relationship. She was able, through much counseling and grit, to become assertive enough in her own behalf to get out of the situation. Today, she is happily...

JUST PROBLEM 2 ! Write MIPS assembly codes for the following: ( need to use sll for any multiplication or srl for division, no other multiplication or division instruction is allowed ) x = 5 * * A [...

Wear as little as possible

Be relaxed at the hips

Do not take criticism personally, even if it is meant to be personal.