3. Consider a simple two-firm case. Suppose both firms produce the same good, but at different marginal costs (with one firm at a lower marginal cost than the other). In this type of situation, compare and contrast the market price, profit, and total output berween Cournot and Stackelberg models Separately consider when 0 the cost-efficient firm is the first-mover vs when (i) the cost-inefficient firm is the first-mover in the Stackelberg model.

3. Consider a simple two-firm case. Suppose both firms produce the same good, but at different marginal costs (with one firm at a lower marginal cost than the other). In this type of situation, compare and contrast the market price, profit, and total output berween Cournot and Stackelberg models Separately consider when 0 the cost-efficient firm is the first-mover vs when (i) the cost-inefficient firm is the first-mover in the Stackelberg model.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Two firms compete in price in a market for infinite periods. In this market, there are N consumers; each buys one unit per period if the price does not exceed $10 and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume N/2 consumers buy from each firm. Assume zero production cost for both firms. A possible strategy that may support the collusive equilibrium is: Announce a price of $10 if the equilibrium price has always been $10; otherwise, announce the price as in Nash equilibrium of the one-shot Bertrand game. 1.a Let & be the discount factor. Find the condition on & such that the above strategy can indeed support the collusive equilibrium. Now suppose that Firm 2's marginal cost is $4, but Firm 1's marginal cost remains at zero. 1.b Find the condition on & under which Firm 2 will not deviate from the collusive equilibrium. 1.c Find the condition on under which Firm 1 will not deviate from the collusive…
Determine the equilibrium output, price and profit for each firm assuming the twofirms move simultaneously
1. Two firms compete in price in a market for infinite periods. In this market, there are N consumers; each buys one unit per period if the price does not exceed $10 and nothing otherwise. Consumers buy from the firm selling at a lower price. In case both firms charge the same price, assume N/2 consumers buy from each firm. Assume zero production cost for both firms. A possible strategy that may support the collusive equilibrium is: Announce a price of $10 if the equilibrium price has always been $10; otherwise, announce the price as in Nash equilibrium of the one-shot Bertrand game.
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Let ci be the constant marginal and average cost for firm i (so that firms may have different marginal costs). Suppose demand is given by P=1-Q. Calculate the Nash equilibrium quantities assuming there are two firms in a Cournot market. Also compute market output, market price, firm profits, industry prof- its, consumer surplus, and total welfare. Represent the Nash equilibrium on a best-response function diagram. Show how a reduction in firm 1’s cost would change the equilibrium. Draw a representative isoprofit for firm 1.
In the Bertrand model, suppose that each firm has a marginal cost of £10 and that firm 1 sets a price of £9.99, which of the following a best-response for firm 2? Click all the correct answers. £10.01 £9.98 £10.00 £11.01 £9.99
First 4 blanks: high/low Last blank: is not/is
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