2. Consider an infinitely repeated game in which, in each period, two firms with zero costs choose quantities and prices are given by: p1 = 1 - q1 - q2/2, p2 1 - q2 - q1/2. Firms have a common discount factor of 8 = 1/2. %3D a) Explain what a trigger strategy is and determine whether the firms can attain the joint profit maximising outcome in a subgame perfect equilibrium using trigger strategies. b) Explain what a stick and carrot strategy is and discuss whether it is possible to attain the joint-profit maximising outcome in a subgame perfect equilibrium using stick and carrot strategies.

2. Consider an infinitely repeated game in which, in each period, two firms with zero costs choose quantities and prices are given by: p1 = 1 - q1 - q2/2, p2 1 - q2 - q1/2. Firms have a common discount factor of 8 = 1/2. %3D a) Explain what a trigger strategy is and determine whether the firms can attain the joint profit maximising outcome in a subgame perfect equilibrium using trigger strategies. b) Explain what a stick and carrot strategy is and discuss whether it is possible to attain the joint-profit maximising outcome in a subgame perfect equilibrium using stick and carrot strategies.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please no written by hand and no emage Consider the following Stackelberg duopoly. Both firms produce a homogenous good. Firm 1 chooses how much to supply first. Firm 2 chooses how much to supply after observing the quantity supplied by firm 1. The market demand is Q = 100 - 10P. For firm i, the total cost of production is TC (q) = 5q₁. In a Subgame Perfect Nash Equilibrium, how much does firm 2 produce?
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O Cell A O Cell C O Cell E O Cell I None of the above
1
#2) Consider the following 2-player, simultaneous move static game summarized by the normal form payoff matrix below: X ROW Y A 1,1 COL B 1,1 2,5 3,0 1,1 Z 0,2 1,3 3,2 a) Can you eliminate any strategies because they are strictly dominated? Reduce the game as much as possible using common knowledge of rationality and explain any steps taken. (ie: what dominates what?) b) Find all Nash equilibrium strategy profiles for this static game. Be sure to specify which strategy is chosen by each player in the equilibrium (describe the strategies, not the payoffs). c) Identify the Pareto Efficient allocations (describe the strategies, not the payoffs).
Answer part C and D
PART C D
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