Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Chapter 15, Problem 15.7P

1

To determine

Sub game perfect equilibrium for Stackelberg model.

2

To determine

Value of sunk cost for which firm 1 deter the entry of second firm.

3

To determine

Best response diagram for Cournot, Stackelberg

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The inverse market demand for fax paper is given by P=100-Q. There are two firms who produce fax paper. Firm 1 has a cost of production of C1= 15*Q1 and firm 2 has a cost of production of C2=20*Q2 a) Suppose that firm play a Stackelberg game. First firm 1 sets the quantity in t=1, then, knowing which quantityfirm 1 has set, firm 2 chooses the quantity in t=2. What are the Stackelberg quantities and prices? What arethe profits od firm 1 and 2? Compared to part a) which firm benefits and which firm loses?
There are two firms in the market. Denote the price and the quantity of firm j by p; and q; , respectively. Those two products are differentiated and the demand system is given by 91 = 100 – 2p1 + P2 92 = 100 + pi – 2p2 For simplicity, assume zero production costs, meaning that profit is equal to revenue. Consider the two-stage game in which firm 1 decides the price first and then firm 2 choose its price after observing firm 1's price. If firm 1's price is 24, what is the best response price of firm 2? Report only the value . Answer:
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