5.Two firms compete repeatedly in a market of homogeneous goods. Eachyear, the firms can choose to charge a low or high price. The following payoff tablesummarizes their payoffs each year. The competition goes on indefinitely. Let 5 E (0, 1)denote the discount factor for both firms.Firm 2Low HighLow0, 05, 0Firm 1High 0, 5 4, 4Consider an n-period punishment trigger strategy s:• Play "High price" in the first stage.• In stage t> 2, if some player deviated to "Low price" in the last period when heis supposed to play "High price", then play "Low price" for n periods and thenrestart the game. In other words, after playing "Low price" for n periods, play"High price" in the next stage as if it is the first stage of the game. Otherwise, play"High price".Find the necessary and sufficient condition on & for (s, s) to be an SPE. A sufficientlysimplified inequality will do.

A Repeated Trigger strategy game is defined as the one in which if a player tends to cooperate the…

Answered: Two firms compete repeatedly in a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a. b. Each firm has four alternative strategies, and a certain profit/payoff is associated with each strategy. The numbers in the payoff matrix denote firm A's profit (in thousands of dollars). The total amount of profit that can be earned by the two firms together is $20000. (This is called a "constant sum game.") Firm B's profit is therefore $20000 minus firm A's profit. What strategies will the two firms select? Is the game strictly determined? If so, how much does each firm gain? B's strategies A's strategies ↓ Increase Advertising Decrease Price Increase Price Alter Product Increase Advertising 0 11 8 11 Decrease Price 8 10 6 2 Increase Price 7 12 15 Alter Product 4 15 3 12 Suppose now that due to a change in consumer preferences, firm A's "Increase Price" strategy pays off better than before when firm B elects to "Decrease Price," that is, the payoff rises from 6 to 14. What strategies will the two firms now select? Is the game strictly determined? If so, how much does each firm…
Two rival companies competing in the same market need to decide their plans for future expansion of their stores. The Table below shows the possible outcomes of their mutually interdependent actions (payoffs are profits in £m) Giga Company Titanic Conglomerate No Change Refurbishment of existing stores Large Expansion No Change 30, 40 25, 35 15, 24 Refurbishment of existing stores 35, 30 28, 32 18, 33 Large Expansion 12, 22 18, 20 20, 25 The Nash equilibrium: (A) does not exist. (B) occurs when both firms choose Refurbishment of existing stores. (C) occurs when both firms choose Large Expansion. (D) occurs when both firms choose No Change.
QUESTION 13 Consider a market where two firms (1 and 2) produce differentiated goods and compete in prices. The demand for firm 1 is given by D₁(P₁, P2) = 140 - 2p1 + P2 and demand for firm 2's product is D2 (P1, P2) 140 - 2p2 + P1 Both firms have a constant marginal cost of 20. What is the Nash equilibrium price of firm 1? (Only give a full number; if necessary, round to the lower integer; no dollar sign.)
1. Assume the payoff matrix for a game is as follows. Firm B X Y Firm A 6,6 14,2 2 2, 14 9,9 What is the maximum interest rate at which collusion could occur between these firms with a trigger strategy if the game is played an infinite number of times?
Suppose two firms face market demand of P=150-Q, where Q = q1+ q2. Both firms have the same unit cost of C, which C=28. Assume the firms compete a la Stackelberg. Firm 1 is the leader and Firm 2 is the follower in this market. a) What is the follower's total revenue function? b) Determine the equilibrium output level for both the leader and the follower. c) Determine the equilibrium market price. d) Determine the profits of the leader and the follower.
AP CollegeBoard Test Booklet Unit 4 Problem Set Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate," you must show how you arrived at your final answer. Use the graph provided below to answer parts (a)-(e). Marginal Cost Average Total Cost Average Variable Cost 108 100 55 Demand 0 10 21 31 44 57 77 Quantity Marginal Revenue BigMed, a profit-maximizing firm, has a patent on a medical device, making it the only producer of that device. The graph above shows BigMed's demand, marginal revenue, average total cost, average variable cost, and marginal cost curves. (a) Calculate BigMed's total revenue if the firm produces the allocatively efficient quantity. Show your work. (b) Starting at a price of $100, if BigMed were to increase the price by 2%, will the quantity demanded decrease by more than 2%, by less…
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Suppose that Firm 1 and Firm 2 are Stackelberg competitors in the market for popsicles. Firm 1 is the leader and Firm 2 is the follower. They have the same cost functions such that MC = 4. Market demand for popsicles is given by QD = 38 – 0.5P. Use this information to answer questions #1 and #2. 1. How many popsicles will Firm 1 produce in the SPE of this game? a. 91 6 b. q1 = 9 12 91 d. 91 с. 18 e. q1 = 36 %3D 2. If these firms were Cournot competitors, then compared to the outcome in #1 (Hint: No calculations necessary.) a. Firm 1 would earn more profit, and Firm 2 would earn less profit. b. Firm 1 would earn less profit, and firm 2 would earn more profit. c. Both firms would earn less profit. d. Both firms would earn more profit. The firms' profits would be the same, but industry-wide profit would be lower.

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