MACROECONOMICS >C< W/MYECONLAB
18th Edition
ISBN: 9781323886038
Author: Pearson
Publisher: Pearson Custom Publishing
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Chapter 19, Problem 3.2P
Subpart (a):
To determine
The shift in
Subpart (b):
To determine
The shift in supply curve to left.
Subpart (c):
To determine
The effect on the
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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
MACROECONOMICS >C< W/MYECONLAB
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