Answered: High Firm2 Low 0,0 High Firm1 High 200,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the following Stackelberg model. There are two firms in the market. Firm 1 is the leader and firm 2 is the follower. Firms can decide to produce low or high. The extensive-form representation below presents the profits depending on production decisions of firms. The first value is profit of firm 1 and second value is profit of firm 2 depending on their production decisions. Solve using backward-induction. What are the optimal production levels of both firms? Describe how you found the optimal strategy using words.see the image

可,明
Search He Te
800, 200
High
Export PDF
Firm2
E Edit PDF
High
Low
0,0
2. Create PDF
E Comment
Combine Files
Firm1
I Organize Pages
High
200, 800
O Compress PDF
Low
Redact
Firm2
Low
Convert edit and e-sign POF
forms & agreements
0,0

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