Consider the following version of the Stackelberg duopoly in which a long-term firm competes with several short-term firms. The short-term firms are only on the market for a period while the long-term firm remains on the market for the entire duration of the game. In each stage game t, first the short-term firm fixes an amount xt. Then, the long-term firm observes xt and chooses a quantity yt. Then, both firms sell their quantities at the price pt = 1-(xt + yt). All firms have marginal costs equal to 0. The short-run firm maximizes its profit, which occurs at every t. For its part, the long-term firm maximizes the present value of the flow of benefits with a discount rate = 0.99At the beginning of each stage game, previously decided actions are common knowledge. 1. What is the subgame perfect equilibrium if the game is played a finite number of periods T? 2. Now consider the infinitely repeated version of this game. Find the subgame perfect equilibrium where x₁ = and yt = ½ in each period t. 3. Can you find a subgame perfect equilibrium in which xt = yt = 1/14 in each period t?

Consider the following version of the Stackelberg duopoly in which a long-term firm competes with several short-term firms. The short-term firms are only on the market for a period while the long-term firm remains on the market for the entire duration of the game. In each stage game t, first the short-term firm fixes an amount xt. Then, the long-term firm observes xt and chooses a quantity yt. Then, both firms sell their quantities at the price pt = 1-(xt + yt). All firms have marginal costs equal to 0. The short-run firm maximizes its profit, which occurs at every t. For its part, the long-term firm maximizes the present value of the flow of benefits with a discount rate = 0.99At the beginning of each stage game, previously decided actions are common knowledge. 1. What is the subgame perfect equilibrium if the game is played a finite number of periods T? 2. Now consider the infinitely repeated version of this game. Find the subgame perfect equilibrium where x₁ = and yt = ½ in each period t. 3. Can you find a subgame perfect equilibrium in which xt = yt = 1/14 in each period t?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a market with two firms, Coke and Pepsi, that produce soft drinks. Both firms must choose whether to charge a high price ($1.25) or a low price ($0.65) for their soft drinks. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Coke's profits are in red and Pepsi's are in blue. Coke's dominant strategy is to pick a price of dominant strategy is to pick a price of $ What is the Nash equilibrium for this game? A. Coke and Pepsi will both choose a price of $1.25. B. Coke will choose a price of $1.25 and Pepsi will choose a price of $0.65. and Pepsi's O C. Coke will choose a price of $0.65 and Pepsi will choose a price of $1.25. D. Coke and Pepsi will both choose a price of $0.65. Price = $1.25 Pepsi Price = $0.65 Price = $1.25 Price = $0.65 $800 Coke $900 $800 $175 $175 $700 $900 $700
Boeing and Airbus are the two primary producers of passenger aircraft. Both firms are preparing to announce their new long-distance jets. Each firm can design their plan to maximize comfort or the number of seats. If both firms choose to maximize the same characteristic they will sell 100 planes each and if they maximize different characteristics they will each sell 150 planes each. Both firms want to maximize sales. Draw a game tree and find the equilibrium strategies and payoffs. Show your work.
Read-a-lot Bookstore and Frontier Books are competitors in the Carlton retail book market. Each has a choice of setting a low price or high price. The payoffs from the price choices are: Assume that the game is played sequentially with Frontier making a decision about its choice of price strategy, and then Read-a-lot, after observing Frontier’s strategy, chooses its price strategy. What is the best choice for Frontier? [To answer this question, you need to take into account your answer for question 1 regarding the best strategy for Read-a-Lot.] a. Low price b. High price c. Frontier is indifferent between High price and Low price d. It is not possible to identify a best choice for Frontier.
Solve the attahment.
Suppose that there are only two firms in a market in which demand is given by p = 64 - Q, where Q is the total production of the two firms. Each firm can choose either a low level of output, qL = 15, or a high level of output, qH = 20. The unit cost of production for both firms is $4. Write down the normal-form representation of the game in which the strategic variable for each firm is the quantity of output and the firms make their choices simultaneously. Find the pure strategy Nash equilibrium of this game (quantities produced and market price).
I selected answer "B", which was surprisingly incorrect. What say you? What would you pick as the correct choice?
Hand written solutions are strictly prohibited
Suppose two firms A and B compete against each other in a Cournot fashion by choosing their quantities. What is the Nash Equilibrium of the game if both firms have a constant marginal cost of 2 and the price in the market is: p(qa + qB) = 20 – 2(qA + qB). O (3, 3) O (2, 2) O (4, 4) None of the other answers are correct (5, 5)
O Cell A O Cell C O Cell E O Cell I None of the above
Please help with these two: 1. Consider a Duopoly model, in which two firms decide a quantity simultaneously. If they collude (setting the total quantity together), then each firm can earn (higher, or lower) profit than in the Cournot equilibrium. 2. Consider a collusion with two firms. The joint profit is maximized by setting quantity and price together. Each firm sells the agreed amount. However, believing that the other firm sells the agreed amount, there is always a temptation for the firm sell (more, or less) than the agreed amount.
The concept of a Nash equilibrium, when applied to an oligopoly, relies on the notion that Firm A in an oligopoly chooses its own best strategy based on which consideration? based on the strategies that other firms have chosen based on the knowledge that other firms are likely to choose their strategies in response to Firm A's choice of a strategy based on the objective of maximizing the collective profits of all firms in the industry based on the internal financial information of Firm A