Iam posting again this question even though it has already been answered because i would like if
Question:
Iam posting again this question even though it has already been answered because i would like if possible a more detailed answer!
Zeus and Iron are the only two cement producers in Gotham. The cement they produce is essentially identical. In this market, each firm chooses the output level to produce and the price is determined by aggregate output (Cournot competition). The inverse demand for cement is given by P = 225 − Q/2 . Q is measured in tons and P is in euros. The marginal cost for Zeus is constant at 50 euros/ton. The respective cost for Iron is constant at 40 euros/ton. A technological innovation in the production process allows both firms to reduce marginal cost by 5 euros/ton.
a) How much would each firm be willing to pay for the innovation, if it were the only firm to acquire it?
b) Consider a situation where firms’ managers, simultaneously and non-cooperatively decide whether to acquire the innovation or not, which costs 900 euros, and then compete in quantities. What is the equilibrium of this game, based on its payoff matrix?
Expert Answer:
Answer Given Firm zeus TR P Q TR 2252Qi TR 225Q22 Lj Qe P 225 Q2 QQ Cournot competition MC 50 MC 40 ... View the full answer
