Question 2 In a recent strategy meeting, the Chief Operating Officer (COO) had asked you to report on the best way to respond to your main competitor's production decisions. You modeled the industry as a Cournot duopoly and calculated profit-maximizing production levels for your firm, depending on what we learn about the competitor's output. Overall sales in the industry Q depend on the market price P as follows: Q = 120 - 4P. Costs per unit are constant at MC = 3 for both firms. Impressed with your work on production strategy, the C00 looks at your musingly. "You seem to have a good grasp of this. Is it somehow possible to predict the price?" “Actually, yes," you say. "I can use game theory to do that." It doesn't take you long to work out the Nash equilibrium quantites, and an hour later you e-mail your price prediction to the COO. The equilibrium price is: %3D %3D Approximately $9 $12 Approximately $39 $60

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.