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6. a. Consider the following sequential game.

6. a. Consider the following sequential game.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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6. a. Consider the following sequential game. Player 1 A Player 2 Player 1 (G) a a Player 2 (4) y i. Determine the subgame perfect Nash equilibria and their outcomes. ii. Determine the Nash equilibria of the game. For each of the Nash equilibria, argue why no player has a profitable deviation. ii. Determine which parts of the Nash equilibrium strategies involve uncredible threats. b. Suppose a perfectly competitive firm has the production function y = (aK + (1 – a)L) where ß > 0 and a € (0,1). The price of labour per unit is w, the price of capital per unit is v and the price of output is p. i. Draw an isoquant of the firm. Determine the possible combinations of (K, L) that the firm can choose to minimise costs to produce y = y,? ii. Assume that a # Determine the output supply function y(a, ß, p, v, w). For what w+v values of ß is the output supply function valid? Explain your answer.
Transcribed Image Text:6. a. Consider the following sequential game. Player 1 A Player 2 Player 1 (G) a a Player 2 (4) y i. Determine the subgame perfect Nash equilibria and their outcomes. ii. Determine the Nash equilibria of the game. For each of the Nash equilibria, argue why no player has a profitable deviation. ii. Determine which parts of the Nash equilibrium strategies involve uncredible threats. b. Suppose a perfectly competitive firm has the production function y = (aK + (1 – a)L) where ß > 0 and a € (0,1). The price of labour per unit is w, the price of capital per unit is v and the price of output is p. i. Draw an isoquant of the firm. Determine the possible combinations of (K, L) that the firm can choose to minimise costs to produce y = y,? ii. Assume that a # Determine the output supply function y(a, ß, p, v, w). For what w+v values of ß is the output supply function valid? Explain your answer.
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