Bundle: Microeconomics, 13th + Aplia, 1 Term Printed Access Card
13th Edition
ISBN: 9781337742535
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 18, Problem 4QP
To determine
Reasons to learn more about a car than about a candidate who runs for the president election.
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Given the following petroleum tax details, calculate the marginal tax rate and explain
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Total Revenue: $500 million
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Tax Rate: 40%
Additional Royalty: 5%
Profit-Based Tax: 10%
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?
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Chapter 18 Solutions
Bundle: Microeconomics, 13th + Aplia, 1 Term Printed Access Card
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