Consider a homogeneous product industry comprising two firms, N = {1,2}, thatcompete by choosing their production quantities q₁20 and q2 ≥ 0 to maximizeprofits ₁ and ₂, respectively. Demand in this industry is captured in the followinginverse demand function:p = 12 - 2Q,91 +92 is total output. Firm 1 has constant marginal costs of production3 and firm 2 has constant marginal costs of production equal to c₂ = 2.where Q =equal to c₁ =a. Suppose that firms choose their production quantities simultaneously (Cournotcompetition). Solve for both firms' Nash equilibrium production quantities andprofits.b. Suppose now that firms choose production quantities sequentially: firm 1selects its quantity first, then firm 2 observes firm 1's strategy choice beforeselecting its own output quantity (Stackelberg competition). Making sure toexplain your solution method carefully, solve for both firms' subgame perfectNash equilibrium production quantities and profits.Comment on the difference in your results between parts a. and b. of thisquestion.c. Suppose that, in the Stackelberg setting of part b. of this question, firm 2 issuesthe following threat to firm 1:"Unless you produce the Cournot Nash equilibrium quantity stage 1, I willflood the market, turning your profits negative in stage 2 of the game."Will this threat alter the subgame perfect Nash equilibrium outcome of thegame? Explain.

There are two firms - Firm 1 & 2 MC of firm 1: c1 = 3 MC of firm 2 : c2 = 2 In a Cournot…

Consider a homogeneous product industry comprising two firms, N = {1,2}, that compete by choosing their production quantities q₁20 and 9220 to maximize profits ₁ and ₂, respectively. Demand in this industry is captured in the following inverse demand function: p = 12 - 2Q, where Q = 9₁ +92 is total output. Firm 1 has constant marginal costs of production equal to c₁ = 3 and firm 2 has constant marginal costs of production equal to c₂ = 2. a. Suppose that firms choose their production quantities simultaneously (Cournot competition). Solve for both firms' Nash equilibrium production quantities and

Consider a homogeneous product industry comprising two firms, N = {1,2}, that compete by choosing their production quantities q₁20 and 9220 to maximize profits ₁ and ₂, respectively. Demand in this industry is captured in the following inverse demand function: p = 12 - 2Q, where Q = 9₁ +92 is total output. Firm 1 has constant marginal costs of production equal to c₁ = 3 and firm 2 has constant marginal costs of production equal to c₂ = 2. a. Suppose that firms choose their production quantities simultaneously (Cournot competition). Solve for both firms' Nash equilibrium production quantities and

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

ChapterB: Differential Calculus Techniques In Management

Section: Chapter Questions

Problem 2E

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