PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Question
Chapter 13, Problem 5P
(a)
To determine
The effect of an increase in government purchases from 1,500 to 1,600 on the short-run equilibrium output.
(b)
To determine
The effect of a decrease in tax collection of 100 on short-run equilibrium output.
(c)
To determine
The effect of a decrease in planned investment spending by 100 on the short-run equilibrium output.
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Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.
(Hint:
Show that learning by doing lowers its cost in the second period.)
Part 2
Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash equilibrium?
Answer
M” method
Given the following model, solve by the method of “M”. (see image)
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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