Bundle: Principles of Macroeconomics, Loose-leaf Version, 8th + LMS Integrated Aplia, 1 term Printed Access Card
8th Edition
ISBN: 9781337378970
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 19, Problem 2PA
Sub part (a):
To determine
Impact of investment tax credit that subsidizes domestic investment.
Sub part (b):
To determine
Impact of investment tax credit that subsidizes domestic investment.
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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
Bundle: Principles of Macroeconomics, Loose-leaf Version, 8th + LMS Integrated Aplia, 1 term Printed Access Card
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