Question: I don't know how to solve this question 3. [SA] Consider a market served by duopolists. The market's demand function is given by D(p) =
I don't know how to solve this question
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3. [SA] Consider a market served by duopolists. The market's demand function is given by D(p) = 3600 - 40p. The marginal cost for firms in this market is constant at MC = 30, and firms have zero fixed costs. Here, we restrict our attention to "one-shot" games. (a) What price and quantity, p" and (", would a monopolist set in this market? What is its corresponding profit level, II"? (b) What is the Nash equilibrium of the Bertrand game without capacity con- straints? Assume that firms split the market equally if they set the same price. Your answer should be values for each firms prices (p, and p2) and profits (7] and 72). (c) Now assume the firms compete in a Cournot game. Give the formula for each firm's best-response function. That is, equations of the form q1 = BR,(q2) and q2 = BR2(q1). (d) Find the Nash Equilibrium of this Cournot game. You should list each individual firm's equilibrium quantity (q, and q2), the market price (p), and the individual firms' profits (, and 12). (e) Now suppose that the firms compete in a Stackelberg game, with firm 1 as the follower. Find the Nash equilibrium. Again, be sure to include each individual firm's equilibrium quantity (q1 and q2), the market price (P), and the individual firms' profits (m and 12)
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