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- Suppose that Russia and Australia (the two biggest producers of diamonds) make an agreement to both keep the production of diamonds low in order to keep the price high. After reaching this agreement, each country must decide whether to follow the agreement. Suppose that they are faced with the following decision: Russia's Decision High Production Australia's Decision High Production ($40 b, $40 b) Low Production ($60 b, $30 b) Low Production ($30 b, $60 b) where cells contain (Russia's profit, Australia's profit). a. If the game is played only one time, characterize each country's best strategy. ($50 b, $50 b) b. What is the Nash equilibrium? Is the Nash equilibrium pareto efficient? Briefly explain why or why not. c. If this were an infinitely repeated game, what outcome would you expect to emerge as the equilibrium? Briefly explain.According to an article in China Daily, China recently accelerated its plan to privatize tens of thousands of state-owned firms. Imagine that you are an aide to a senator on the Foreign Relations Committee of the U.S. Senate, and you have been asked to help the committee determine the price and quantity that will prevail when competitive forces are allowed to equilibrate the market. The best estimates of the market demand and supply for the good (in U.S. dollar equivalent prices) are given by: Qd=12 -2P and Qs=-4 + 2P, respectively. a. Determine the competitive equilibrium price and quantity b. Based on your answer to the Senate Foreign Relations Committee in question (2a), one of the senators raises a concern that the free market price might be too high for the typical Chinese citizen to pay. Accordingly, she asks you to explain what would happen if the Chinese government privatized the market, but then set a price at the Chinese equivalent of $3.00. How do you answer? What…Use the figures below to answer the following question. The figure on the left is the payoff matrix that represents the invisible hand game where two farmers decide which crop to plant, with the Nash equilibrium circled. The figure on the right illustrates the gains from trade realised in a perfectly competitive market. Discuss the common idea that is implied by both the invisible hand game and the perfectly competitive market.
- The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $34, $24, $14, $12, and $10 (one seller at each price). Five buyers are willing to buy one widget at the following prices: $10, $12, $14, $24, and $34 (one buyer at each price). For each price shown in the following table, use the given information to enter the quantity demanded and quantity supplied. Price ($ per widget) Quantity Demanded (widgets) $10 $12 $14 $24 $34 In this market, the equilibrium price will be Quantity Supplied (widgets) 3 2 4 0 5 1 per widget, and the equilibrium quantity will be widgets.In the Bertrand model, suppose that each firm has a marginal cost of £5 and that firm 1 sets a price of £5, which of the following a best-response for firm 2? Click all the correct answers. £5.00 £4.98 £4.99 £5.20 £5.01Consider a market for crude oil production. There are two firms in the market. The marginal cost of firm 1 is 20, while that of firm 2 is 20. The marginal cost is assumed to be constant. The inverse demand for crude oil is P(Q)=200-Q, where Q is the total production in the market. These two firms are engaging in Cournot competition. Find the production quantity of firm 1 in Nash equilibrium. If necessary, round off two decimal places and answer up to one decimal place.
- Suppose perfect competition prevails in the market for hotel rooms. The current market equilibrium price of a standard hotel room is $100 per night. Show that the current market equilibrium is efficient, assuming that both the marginal cost incurred by sellers and the marginal benefit perceived by buyers reflect all costs and benefits associated with production and use of hotel rooms. Suppose a $10 per night tax is levied on hotel occupancy. Show how this tax will prevent the market from achieving efficient output. Show the loss in net benefits from hotel use resulting from the tax.Suppose the demand function for widgets is Q(p) = 60 – p, and all firms that produce widgets have total cost function C(q) = 16 + q^3.a) Suppose that the market is perfectly competitive and there is free entry and exit. All firms that enter use the same technology. A firm that decides to stay out of the market can avoid paying the fixed cost and has a profit of zero. Solve for the long-run competitive equilibrium. What is the long-run equilibrium price? What is the quantity produced by each firm? How many firms will produce in this market?b) What is the consumer surplus under the perfectly competitive model?How to Cultivate selected demand?
- Use the photo at exercise 14 to solve the problem below Imagine that firm X chooses their quantity first, then firm Y observes the quantity of firm X and chooses their own quantity. What quantities will they end up choosing? Is there a first or second-mover advantage here? [You may assume that firm X can only choose quantities that are multiples of 200. This prevents you from having to deal with prices that are not on the schedule. Also it means you've done all the busy work already--assuming you did the assignment last week.....and got it right. So this shouldn't require a lot of calculations, just a little thinking about how equilibrium works in a sequential-move game. Oh, and just give me the quantity for each firm, don't worry about giving me a complete strategy for firm Y.]Explain why the equilibrium of the Bertrand model is a Nash equilibrium.Part 3,4, and 5