1. The Nash Equilibrium research levels are Choices: A. Higher than the cooperative research levels for both firms. B. Higher than cooperative research levels for firm 1 but lower for... C. Lower than the cooperative research levels for both firms. D. Higher than cooperative research levels for firm 2 but lower for... 2. An increase in the value of a2 would Choices: A. Increase the Nash Equilibrium levels of research for firm 1 and de... B. Decrease the Nash Equilibrium levels of research for both firms bec... C. Increase the Nash Equilibrium levels of research for both firms... D. Decrease the Nash Equilibrium levels of research for firm 1 and firm 2...
Economics: Industrial Economics
Question:
In a market that operates under quantity competition there are 2 firms (Cournot duopoly). The inverse demand function is P = A - B Q. The cost structure of firm 1 is given by C1(q1) = F1 + c1 q1 and that of firm 2 is given by C2(q2) = F2 + c2 q2.
Prior to competing, the two firms can engage in research at levels (x1, x2) respectively in order to lower their marginal costs. As a result, marginal costs are c1 = c - x1 - β2x2 and c2= C - x2 - β1 X1.
where β1 = β2 > ½.
Finally, the research costs are F1 = a1 (x1)^2 /2 and F2 = a2 (x2)^2 /2, where a1 > 0 and a2> 0.
1. The Nash Equilibrium research levels are
Choices:
A. Higher than the cooperative research levels for both firms.
B. Higher than cooperative research levels for firm 1 but lower for...
C. Lower than the cooperative research levels for both firms.
D. Higher than cooperative research levels for firm 2 but lower for...
2. An increase in the value of a2 would
Choices:
A. Increase the Nash Equilibrium levels of research for firm 1 and de...
B. Decrease the Nash Equilibrium levels of research for both firms bec...
C. Increase the Nash Equilibrium levels of research for both firms...
D. Decrease the Nash Equilibrium levels of research for firm 1 and firm 2...
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