QUESTION (5) The market demand for a good is described by the following inverse demand function:...

 

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QUESTION (5) The market demand for a good is described by the following inverse demand function: P(Q)=- where Q is total quantity demanded, P(Q) is the market price and a > 0. Three firms, i = 1,2,3, have identical cost functions: C(q) = q where q, denotes firm i's output quantity, hence Q = 9₁ +9₂ +93. Consider a two stage non-cooperative game. At Stage I Firm 1 produces quantity q, then at Stage II Firm 2 and Firm 3 observe the first stage quantity and then move simultaneously and produce 92 and 93. a-Q if Q≤a 0 if Q>a (a) (b) (b.i) How many sub-games are there in this game? Describe the sub-games. Use backwards induction solution method by identifying the history of the game and specifying correct anticipations for later stages. Find all subgame Nash equilibria of the game. (b.ii) Find the sub-game perfect outcome of the game QUESTION (5) The market demand for a good is described by the following inverse demand function: P(Q)=- where Q is total quantity demanded, P(Q) is the market price and a > 0. Three firms, i = 1,2,3, have identical cost functions: C(q) = q where q, denotes firm i's output quantity, hence Q = 9₁ +9₂ +93. Consider a two stage non-cooperative game. At Stage I Firm 1 produces quantity q, then at Stage II Firm 2 and Firm 3 observe the first stage quantity and then move simultaneously and produce 92 and 93. a-Q if Q≤a 0 if Q>a (a) (b) (b.i) How many sub-games are there in this game? Describe the sub-games. Use backwards induction solution method by identifying the history of the game and specifying correct anticipations for later stages. Find all subgame Nash equilibria of the game. (b.ii) Find the sub-game perfect outcome of the game

Answer rating: 100% (QA)

a There are three subgames in this game Subgame 1 In the first subgame Firm 1 produces quantity q1 S... View the full answer