Problem 1 ( Consider a Cournot duopoly with inverse demand funcion 22 - (q +92) if q1 + 92 < 22, if q1 + q2 > 22. P(q1 + 42) 0. The marginal cost of firm 1 is ci = 7, and it is known to all firms while firm 2's marginal cost cz is private information. The probability distribution of however, is known to all firms; c2 can take values of C2, 1 C2 = with probability , 13 with probability . (a) Determine the best response functions of each firm. (b) Derive the set of Bayesian Nash equilibrium of the game.
Problem 1 ( Consider a Cournot duopoly with inverse demand funcion 22 - (q +92) if q1 + 92 < 22, if q1 + q2 > 22. P(q1 + 42) 0. The marginal cost of firm 1 is ci = 7, and it is known to all firms while firm 2's marginal cost cz is private information. The probability distribution of however, is known to all firms; c2 can take values of C2, 1 C2 = with probability , 13 with probability . (a) Determine the best response functions of each firm. (b) Derive the set of Bayesian Nash equilibrium of the game.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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