= - 5. In a recent strategy meeting, the Chief Operating Officer (COO) had asked you to report on the best way to respond to your main competitor's production decisions. You modeled the industry as a Cournot duopoly and calculated profit-maximizing production levels for your firm, depending on what we learn about the competitor's output. The market price P depends on the quantity sold by your company (9₁), and the quantity sold by your competitor (92) as follows: P 125 0.25q₁ - 0.2592. Costs per unit depend on the production level: they are MC₁ = q₁ for us, and similarly MC₂ 92 for our competitor. Impressed with your work on production strategy, the CO0 looks at your musingly. "You seem to have a good grasp of this. Is it somehow possible to predict the price?" "Actually, yes," you say. "I can use game theory to do that." It doesn't take you long to work out the Nash equilibrium quantites, and an hour later you e-mail your price prediction to the COO. The equilibrium price is: = o $25 o Approximately $89 o Approximately $109 $125 O

= - 5. In a recent strategy meeting, the Chief Operating Officer (COO) had asked you to report on the best way to respond to your main competitor's production decisions. You modeled the industry as a Cournot duopoly and calculated profit-maximizing production levels for your firm, depending on what we learn about the competitor's output. The market price P depends on the quantity sold by your company (9₁), and the quantity sold by your competitor (92) as follows: P 125 0.25q₁ - 0.2592. Costs per unit depend on the production level: they are MC₁ = q₁ for us, and similarly MC₂ 92 for our competitor. Impressed with your work on production strategy, the CO0 looks at your musingly. "You seem to have a good grasp of this. Is it somehow possible to predict the price?" "Actually, yes," you say. "I can use game theory to do that." It doesn't take you long to work out the Nash equilibrium quantites, and an hour later you e-mail your price prediction to the COO. The equilibrium price is: = o $25 o Approximately $89 o Approximately $109 $125 O

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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