Consider a Cournot competition model with two firms. Inverse demand is given by p = 24-Q. Firms have a marginal costs of 2c (c for the labour cost of one unit of output and c for the capital cost of one unit of output). Firm 2 has a fixed cost of f. Suppose now that before choosing output firm 1 has given many people a fixed labour contract and that it cannot fire them so that its marginal cost is effectively equal to c., a. Derive the Cournot - Nash equilibria in period 2 for any K if f 0 and c = 2. b. Will firm 1 want to deter entry in case f = 0 and c = 2 ? If so, which K will it produce? c. Will firm 1 want to deter entry in case c = 2, f = 30? If so, which K will it choose? d. If c = 3, for what values of f will the incumbent want to engage in entry deterrence?

Consider a Cournot competition model with two firms. Inverse demand is given by p = 24-Q. Firms have a marginal costs of 2c (c for the labour cost of one unit of output and c for the capital cost of one unit of output). Firm 2 has a fixed cost of f. Suppose now that before choosing output firm 1 has given many people a fixed labour contract and that it cannot fire them so that its marginal cost is effectively equal to c., a. Derive the Cournot - Nash equilibria in period 2 for any K if f 0 and c = 2. b. Will firm 1 want to deter entry in case f = 0 and c = 2 ? If so, which K will it produce? c. Will firm 1 want to deter entry in case c = 2, f = 30? If so, which K will it choose? d. If c = 3, for what values of f will the incumbent want to engage in entry deterrence?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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