Questions 7-10: And now, yet again (!) we return to the duopoly price competition game. Recall that the demand curve is given by Q = 6 – p where p is the lower of the two prices (and prices are quoted in dollar amounts). The lower-priced firm meets all of the market's demand. If the two firms post the same price p, then each gets half the market; that is, each gets ,P. Suppose that costs of production are zero. 7. Show that the best response to your rival posting a price of 6 dollars is to post the monopoly price of 3 dollars. What is the best response against a rival's price of 5 dollars? 4 dollars? 8. Can you show that the best response to 3 dollars is to price at 2 dollars instead? 9. Show that a Nash equilibrium of this price competition model is for each firm to price at 1 dollar. 10. Can you find another Nash Equilibrium? If so, do firms make profits in this Nash Equilibrium?

Questions 7-10: And now, yet again (!) we return to the duopoly price competition game. Recall that the demand curve is given by Q = 6 – p where p is the lower of the two prices (and prices are quoted in dollar amounts). The lower-priced firm meets all of the market's demand. If the two firms post the same price p, then each gets half the market; that is, each gets ,P. Suppose that costs of production are zero. 7. Show that the best response to your rival posting a price of 6 dollars is to post the monopoly price of 3 dollars. What is the best response against a rival's price of 5 dollars? 4 dollars? 8. Can you show that the best response to 3 dollars is to price at 2 dollars instead? 9. Show that a Nash equilibrium of this price competition model is for each firm to price at 1 dollar. 10. Can you find another Nash Equilibrium? If so, do firms make profits in this Nash Equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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