1. Consider the 3 stage belief-based predation model discussed in class. Inverse demand is now P = 200-2Q, CB = 10, FB = 2000 and that CA = 0 or CA = 20 with equal probability. (a) Suppose that B remains in the market and that, in the final stage, A's marginal cost is known and is equal to 0. What will be B's final stage profit. [Use the asymmetric Cournot formulae on the slides]. (b) Suppose that B remains in the market and that, in the final stage, A's marginal cost is known and is equal to 20. What will be B's final stage profit. [Use the asymmetric Cournot formulae on the slides]. (c) If B has to take its exit decision without knowing A's marginal cost (i.e., it attaches proba- bility 0.5 to each value), would B exit or stay in? Given your answer, will there by an equilibrium where a high cost A chooses to set the same price as a low cost A in the first period?

1. Consider the 3 stage belief-based predation model discussed in class. Inverse demand is now P = 200-2Q, CB = 10, FB = 2000 and that CA = 0 or CA = 20 with equal probability. (a) Suppose that B remains in the market and that, in the final stage, A's marginal cost is known and is equal to 0. What will be B's final stage profit. [Use the asymmetric Cournot formulae on the slides]. (b) Suppose that B remains in the market and that, in the final stage, A's marginal cost is known and is equal to 20. What will be B's final stage profit. [Use the asymmetric Cournot formulae on the slides]. (c) If B has to take its exit decision without knowing A's marginal cost (i.e., it attaches proba- bility 0.5 to each value), would B exit or stay in? Given your answer, will there by an equilibrium where a high cost A chooses to set the same price as a low cost A in the first period?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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