Principles Of Economics, Ap Edition, 9781337292603, 1337292605, 2018
8th Edition
ISBN: 9781337292603
Author: Mankiw
Publisher: Cengage Learning (2018)
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Question
Chapter 19, Problem 1PA
Subpart (a):
To determine
Increasing value of skills and earnings.
Subpart (b):
To determine
Increasing value of skills and earnings.
Subpart (c):
To determine
Increasing value of skills and earnings.
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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 19 Solutions
Principles Of Economics, Ap Edition, 9781337292603, 1337292605, 2018
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